Coordination in decentralized assembly systems with uncertain component yields

Haresh Gurnani, Yigal Gerchak

Research output: Contribution to journalArticle

132 Scopus citations

Abstract

The literature on assembly systems with random component yields has focused on centralized systems, where a single decision maker chooses all components' production quantities and incurs all the costs. We consider a decentralized setting where the component suppliers choose their production quantities based solely on their own cost/reward structure, and the assembly firm makes ordering decisions based on its own cost/reward structure. When the suppliers control their inputs but the outputs exhibit random yields, coordination in such systems becomes quite complex. In such situations, incentive alignment control mechanisms are needed so that the suppliers will choose production quantities as in the centralized system case. One such mechanism is to penalize the supplier with the worse delivery performance. We analyze the conditions under which system coordination is achieved while respecting participation constraints. Further, we determine the optimal component ordering policy for the assembly firm and derive the optimal coordinating penalties.

Original languageEnglish (US)
Pages (from-to)1559-1576
Number of pages18
JournalEuropean Journal of Operational Research
Volume176
Issue number3
DOIs
StatePublished - Feb 1 2007

Keywords

  • Game theory
  • Inventory
  • Supply chain coordination

ASJC Scopus subject areas

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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