On coordinating an assembly system under random yield and random demand. (English) Zbl 1159.90309

Summary: We consider a decentralized assembly system in which the customer demand and the yield of the suppliers are random. We establish the concavity of expected supply chain profit for arbitrary number of suppliers. We propose two contracts and show that they coordinate the chain under forced compliance. The contracts are mixed type of contracts that include payments from different contract schemes. Particularly, a payment or a penalty to the worst performing supplier seems inevitable. Apart from providing a coordinating contract, we also provide qualitative insights based on a numerical illustration of centralized and decentralized solutions.


90B06 Transportation, logistics and supply chain management
Full Text: DOI


[1] Bertsekas, D. P.; Nedic, A.; Ozdaglar, A. E., Convex Analysis and Optimization (2003), Athena Scientific · Zbl 1140.90001
[2] Cachon, G. P., Supply chain coordination with contracts, (de Kok, A.; Graves, S., Handbooks in Operations Research and Management Science: Supply Chain Management: Design Coordination and Operation (2003), Elsevier Publishing Company) · Zbl 1232.90173
[3] Gerchak, Y.; Wang, Y., Revenue-sharing vs wholesale-price contracts in assembly systems with random demand., Production and Operations Management, 13, 1, 23-33 (2004)
[4] Gerchak, Y.; Wang, Y.; Yano, C. A., Lot sizing in assembly systems with random component yields, IIE Transactions, 26, 2, 19-24 (1994)
[6] 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)
[7] Gurnani, H.; Akella, R.; Lehoczky, J., Supply management in assembly systems with random yield and random demand, IIE Transactions, 32, 701-714 (2000)
[8] Gurnani, H.; Gerchak, Y., Coordination in decentralized assembly systems with uncertain component yields, European Journal of Operational Research, 176, 3, 1559-1576 (2007) · Zbl 1109.90004
[9] Khouja, M., The single period (news-vendor) problem: literature review and suggestions for future research, Management Science, 27, 537-553 (1999)
[10] Lariviere, M.; Porteus, E. L., Selling to the newsvendor: analysis of price-only contracts, Manufacturing and Service Operations Management, 3, 4, 293-305 (2001)
[11] Yano, C. A.; Lee, H. L., Lot sizing with random yields: a review, Operations Research, 43, 2, 311-334 (1995) · Zbl 0832.90031
[12] Yao, D. D., Optimal run quantities for an assembly system with random yields, IIE Transactions, 20, 4, 399-403 (1988)
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.