Article ID: | iaor20043036 |
Country: | United States |
Volume: | 50 |
Issue: | 8 |
Start Page Number: | 917 |
End Page Number: | 936 |
Publication Date: | Dec 2003 |
Journal: | Naval Research Logistics |
Authors: | Ferguson Mark E. |
Keywords: | inventory |
Negotiations between an end product manufacturer and a parts supplier often revolve around two main issues: the supplier's price and the length of time the manufacturer is contractually held to its order quantity, commonly termed the “commitment time frame.” Because actual demand is unknown, the specification of the commitment time frame determines how the demand risk is shared among the members of the supply chain. Casual observation indicates that most manufacturers prefer to delay commitments as long as possible while suppliers prefer early commitments. In this paper, we investigate whether these goals are always in the firm's best interest. In particular, we find that the manufacturer may sometimes be better off with a contract that requires an