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Capacity restoration in a decentralized assembly system with supply disruption risks
Author(s) -
Li Guo,
Li Lin,
Zhou Ying,
Guan Xu
Publication year - 2017
Publication title -
international transactions in operational research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.032
H-Index - 52
eISSN - 1475-3995
pISSN - 0969-6016
DOI - 10.1111/itor.12324
Subject(s) - business , incentive , industrial organization , production (economics) , supplier relationship management , supply chain , ex ante , operations management , microeconomics , supply chain management , economics , marketing , macroeconomics
This paper investigates an assembly system comprising one manufacturer and two suppliers who provide two complementary components independently. One unreliable supplier may encounter disruption during production, whereas both the manufacturer and the other reliable supplier can assist the disrupted supplier in capacity restoration. We specifically consider two different scenarios. In each scenario, the manufacturer or the reliable supplier ex ante decides whether to handle the disrupted supplier's capacity restoration cost alone and to what extent. We demonstrate that the cost‐sharing incentives of the manufacturer and reliable supplier vary significantly under different conditions. When the retail price is high, paying for the disrupted supplier's restoration cost can be favorable for the manufacturer. Otherwise, the manufacturer can benefit considerably when the reliable supplier shares the restoration cost. When the wholesale price is high, handling the restoration cost alone is more favorable for the reliable supplier than sharing this responsibility with the manufacturer.