Channel coordination in an assembly system facing uncertain demand with synchronized processing time and delivery quantity

Supply chains need to be synchronized to increase system efficiency. With increasing globalization, an assembly or a manufacturing firm may receive supplies from all over the world. Synchronization of such a system becomes difficult for two reasons: first, each supplier has certain capacity and can supply materials with a fixed but different order processing time: second, each supplier has a different cost structure and, therefore, production quantities differ due to incentives conflicts, which leads to local optimization of profits by the suppliers. In the existing literature, this problem is generally tackled by focusing either on the synchronization of order processing time or on order quantity determination. However, when system coordination is of the essence, simultaneous consideration of both becomes imperative. A model to synchronize the assembly process is proposed and the optimal order quantities in a two-echelon assembly system with one assembler (facing a stochastic demand) and multiple suppliers with deterministic order processing times is determined. A numerical study conducted shows that risk sharing and proper safety stock placement lead to better system coordination and improve system performance.