Coordination in decentralized assembly systems with uncertain component yields. (English) Zbl 1109.90004

Summary: 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.


90B05 Inventory, storage, reservoirs
91A40 Other game-theoretic models


Full Text: DOI


[1] Anupindi, R.; Akella, R., Diversification under supply uncertainty, Management science, 39, 8, 944-963, (1993) · Zbl 0785.90040
[2] Arrow, K.J.; Karlin, S.; Scarf, H., Studies in the mathematical theory of inventory and production, (1958), Stanford University Press Stanford, CA · Zbl 0079.36003
[3] Baiman, S., Netessine, S., 2004. The incentive effect of multiple sourcing. Working paper, Wharton School.
[4] Baiman, S.; Fischer, P.E.; Rajan, M.V., Information, contracting and quality costs, Management science, 46, 776-785, (2000)
[5] Baiman, S., Netessine, S., Kunreuther, H., 2004. Procurement in supply chains when end-product exhibits weakest-link property. Working paper, Wharton School.
[6] Bassok, Y.; Akella, R., Ordering and production decisions with supply quality and demand uncertainty, Management science, 37, 12, 1556-1574, (1991) · Zbl 0729.91010
[7] Bollapragada, S.; Morton, T.E., Myopic heuristics for the random yield problem, Operations research, 47, 5, 713-722, (1999) · Zbl 0976.90002
[8] Cachon, G.P., Supply chain coordination with contracts, () · Zbl 1232.90173
[9] Cachon, G.P.; Camerer, C., Loss avoidance and forward induction in coordinated games, Quarterly journal of economics, 112, 165-194, (1996)
[10] Cachon, G.P., Zhang, F., 2004. Procuring fast delivery. Part I: Multi-sourcing and scorecard allocation of demand via past performance. Working paper, Wharton School.
[11] Clarke, E., Multipart pricing of public goods, Public choice, 8, 19-33, (1971)
[12] Friedman, J.W., Game theory with applications to economics, (1986), Oxford University Press New York
[13] Gavirneni, S., Benefits of cooperation in a production distribution environment, European journal of operational research, 130, 3, 612-623, (2001) · Zbl 0983.90030
[14] Gerchak, Y.; Wang, Y., Revenue sharing and wholesale-price contracts in assembly systems with random demand, Production and operations management, 13, 23-33, (2004)
[15] Gerchak, Y.; Wang, Y.; Yano, C.A., Lot sizing in assembly systems with random component yields, IIE transactions, 26, 2, 19-24, (1994)
[16] Gurnani, H.; Akella, R.; Lehoczky, J., Optimal order policies in assembly systems with random demand and random supplier delivery, IIE transactions, 28, 865-878, (1996)
[17] Gurnani, H.; Akella, R.; Lehoczky, J., Supply management in assembly systems with random yield and random demand, IIE transactions, 32, 701-714, (2000)
[18] Henig, M.; Gerchak, Y., The structure of periodic review policies in the presence of random yield, Operations research, 38, 634-643, (1990) · Zbl 0721.90034
[19] Henig, M., Gerchak, Y., 1994. Yield randomness: Concepts and properties. Proceedings of the ORSA TECMAN Conference, pp. 133-138.
[20] Knez, M.; Camerer, C., Creating expectational assets in the laboratory: coordination in ‘weakest link’ games, Strategic management journal, 15, 101-119, (1994)
[21] Laffont, J.-J., Incentives and the allocation of public goods, (), (Chapter 10)
[22] Reyniers, D.J.; Tapiero, C.S., The delivery and control of quality in supplier – producer contracts, Management science, 41, 1581-1589, (1995) · Zbl 0861.90066
[23] Singh, M.R.; Abraham, C.T.; Akella, R., A wafer design problem in semiconductor manufacturing for reliable customer service, IEEE transactions on components, hybrids, and manufacturing technology, 13, 103-108, (1990)
[24] Van Huyck, J.; Battalio, R.; Beil, R.O., Tacit coordination games, strategic uncertainty and coordination failure, American economic review, LXXX, 234-248, (1990)
[25] Wolfram, S., Mathematica. A system for doing mathematics by computer, (1988), Addison-Wesley Publishing Company, Inc. New York · Zbl 0671.65002
[26] Yano, C.A.; Lee, H.L., Lot sizing with random yields: A review, Operations research, 43, 311-334, (1995) · Zbl 0832.90031
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.