Assembly Systems with Sequential Supplier Decisions and Uncertain Demand

We consider multitier push assembly systems with sequential supplier decisions and a wholesale price contract. We show that both an Original Equipment Manufacturer (OEM)–Contract Manufacturer (CM) assembly and a modular assembly with sequential supplier decisions are mathematically equivalent to the corresponding traditional assembly. We determine that, in most cases, the first mover supplier realizes a higher profit than the second mover supplier but we also identify the sufficient conditions for the reverse to occur. We provide conditions under which the order quantity, the second mover profit, total supplier profits, and the assembler profit are either higher or lower for a multitier system with sequential suppliers compared to simultaneous suppliers. We conclude that the first mover is always better off in a three‐tier sequential system while she can be either better off or worse off in a four‐tier sequential system compared to the corresponding simultaneous systems. We also analyze the impact of information asymmetry on the supplier and assembler profits in a three‐tier sequential system. Finally, we determine the profit threshold for an independent manufacturer in a three‐tier system to become a CM in a four‐tier system and vice versa.