Annals of Operations Research

, Volume 257, Issue 1–2, pp 613–639 | Cite as

Diversity of payment contracts in a decentralized assembly system

Article

Abstract

Conventional wisdom views that in an assembly system, suppliers have to accept a unified payment contract when transacting with a manufacturer. However, in practice, the implementation of a payment contract is clearly more dependent on the channel power of the supplier in the supply chain. This paper considers an assembly system consisting of two suppliers with different channel powers, and identifies three payment contracts, namely, on-delivery payment, on-agreed-time payment, and ready-to-assemble payment. We investigate the equilibrium delivery and timing decisions of firms under three different cases distinguished by the combinations of different payment contracts in the system. Based on both theoretical and quantitative analyses, three major results are obtained. First, the delivery times of suppliers are cost-driven and time-related. Second, the buffer time of the manufacturer can balance the production lead times of the supplier. Third, the supply chain achieves the lowest cost when the core supplier chooses an on-agreed-time payment contract, and the general supplier adopts a ready-to-assemble payment contract.

Keywords

Assembly system Payment contracts Comparative analysis Game theory 

Notes

Acknowledgments

This work was partially supported by Youth Foundation for Humanities and Social Sciences of Ministry of Education of China [14YJC630041]; China Postdoctoral Science special Foundation [2014T70741]; National Natural Science Foundation of China [71402126], [71102174], [71372019], [71371147], [71471057] and [71231007]; Beijing Higher Education Young Elite Teacher Project [YETP1173]; Specialized Research Fund for Doctoral Program of Higher Education of China [20111101120019]; Beijing Philosophy and Social Science Foundation of China [11JGC106].

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.School of Management and EconomicsBeijing Institute of TechnologyBeijingChina
  2. 2.Business SchoolHunan UniversityChangshaChina
  3. 3.Economics and Management SchoolWuhan UniversityWuhanChina

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