Risk ownership in contract manufacturing

Risk ownership in contract manufacturing

0.00 Avg rating0 Votes
Article ID: iaor200937842
Country: United States
Volume: 9
Issue: 3
Start Page Number: 225
End Page Number: 241
Publication Date: Jun 2007
Journal: Manufacturing & Service Operations Management
Authors: , ,
Keywords: risk, supply & supply chains
Abstract:

We consider a supply chain where a contract manufacturer (CM) serves a number of original equipment manufacturers (OEMs). Investment into productive resources is made before demand realization, hence the supply chain faces the risk of under– or overinvestment. The CM and OEMs differ in their forecast accuracy and in their resource pooling capabilities, leading to a disparity in their ability to minimize costs due to demand uncertainty. We consider two scenarios in which this risk is borne by the OEM and CM, respectively. We determine which party should bear the risk so that maximum supply chain profits are achieved. We investigate the effectiveness of premium–based schemes in inducing the best party to bear the risk, and conclude that they function well despite information asymmetry when double marginalization is not very high.

Reviews

Required fields are marked *. Your email address will not be published.