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Component Outsourcing Contracts in a Two-Component Assembly System  

Kim, Eun-Gab (College of Business Administration, Ewha Womans University)
Publication Information
IE interfaces / v.22, no.2, 2009 , pp. 165-173 More about this Journal
Abstract
This paper considers a two-component assembly system that makes different types of purchasing contracts by component type and studies the issue of coordinating those contracts. Acquisition of type 1 component is based on the long-term contract. In contrast, type 2 component is intermittently purchased under the sort-term contract. We identify the structural properties of the optimal short-term contract and investigate how the changes in system parameters affect the optimal performance. To provide managerial insights, we compare the short-term and long-term contracts for type 2 component and discuss the conditions that make the short-term contract preferable to the long-term contract. We also present a result which shows that coordinating the contracts of type 1 and type 2 components can be significantly profitable over uncoordinating them.
Keywords
supply contract; coordination of contracts; purchasing; multi-component assembly;
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