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Coordinating a Semi‐Centralized Global Production Network Through Different Levels of Headquarters Involvement
Author(s) -
Liu Fang,
Song JingSheng
Publication year - 2017
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.12630
Subject(s) - expediting , delegate , supply chain , business , industrial organization , component (thermodynamics) , production (economics) , control (management) , operations management , order (exchange) , computer science , microeconomics , marketing , economics , finance , physics , management , artificial intelligence , thermodynamics , programming language
Motivated by our experience with a global company, we propose and study the concept of a semi‐centralized supply chain and analyze its coordination issues. We focus on a supply chain consisting of a home plant and a foreign branch, both of which are under the same parent company but have considerable autonomy. The role of the home plant is to provide a key component to the foreign branch with guaranteed service (required by the headquarters). Because of a high fixed order cost, the branch orders the component rather infrequently, causing high expediting costs at the home plant. Our purpose is to help the headquarters to improve the supply chain efficiency. We show that under certain conditions, the headquarters can coordinate the supply chain by setting an upper bound on the expediting frequency. If these conditions fail to hold, a simple fixed cost‐sharing contract coordinates the supply chain. When centralized control is too costly or infeasible, the headquarters may delegate the contract design rights to the subunits. If the home plant receives the rights, the supply chain performance can be significantly improved (sometimes to near optimality). These results provide guidance to the headquarters on whether, when, and to whom to delegate the coordination initiatives.