Strategic Reliability Investments in Multi-Indenture Supply Chains
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It has been documented that Performance-based contracting (PBC) promotes improvement of product reliability for maintenances of highvalued products. However, nontrivial challenges exist in a typical supply chain that consists of multiple suppliers providing services for distinct subsystems. We identify a source of inefficiency in this environment that leads the suppliers to underinvest in reliability. Using PBC neutralizes such inefficiency, but unexpectedly, it results in an overinvestments in reliability. Interestingly, long-term supply chain cost is reduced when PBC is combined with cost-sharing contracts, counter to the common belief that fixed-price contracts are more effective in reducing costs.
Abstract
It has been documented that Performance-based contracting (PBC) promotes improvement of product reliability for maintenances of highvalued products. However, nontrivial challenges exist in a typical supply chain that consists of multiple suppliers providing services for distinct subsystems. We identify a source of inefficiency in this environment that leads the suppliers to underinvest in reliability. Using PBC neutralizes such inefficiency, but unexpectedly, it results in an overinvestments in reliability. Interestingly, long-term supply chain cost is reduced when PBC is combined with cost-sharing contracts, counter to the common belief that fixed-price contracts are more effective in reducing costs.
참고문헌 (17)
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