Procurement Contract Design Considering Supply Disruption and Delay in Delivery under Asymmetric Information

doi:10.3969/j.issn.1007-7375.e15-1401

Abstract

Abstract: In order to explore the impact of supply disruption risk and delay in delivery on the manufacturer's procurement decisions under asymmetric information, the manufacturer's optimal procurement contracts and supplier's optimal production decisions are analyzed, by employing the theory and methodology of procurement mechanism design. The results show that: 1) the manufacturer should regulate the production quantity and lead time of the supplier by designing penalty for non-delivery and for delay in delivery, respectively. 2) Given supplier's private information about supply reliability, the high type supplier receives higher penalties for non-delivery and delay in delivery than in the case of symmetric information, shortening the optimal lead time. In contrast, the low type supplier obtains lower penalty for non-delivery, and the penalty for delay in delivery is not affected by information asymmetry, leading to unchanged lead time decision. 3) Information asymmetry does not necessarily decrease social welfare.

Key words: supply risk, contract design, information asymmetry, penalty for delay in delivery, penalty for non-delivery

CLC Number:

F274

SHEN Xiaoyu, SONG Wenqian. Procurement Contract Design Considering Supply Disruption and Delay in Delivery under Asymmetric Information[J]. Industrial Engineering Journal , 2017, 20(2): 1-6.

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