Dynamic Cost Reduction Through Process Improvement in Assembly Networks

摘要: We consider a decentralized assembly system in which buyer purchases components from several first-tier suppliers. examine the dynamics of suppliers' investments cost-reduction initiatives over life cycle product under different procurement approaches. model investment decisions cost-contingent contracts, with wholesale prices determined on basis prevailing component costs, as dynamic game closed-loop strategies. show that there always exists an equilibrium are synchronized, is, each period either all suppliers invest process improvement or no supplier does. also target-price assembler announces rate cost reduction to be achieved product's at beginning contractual relationship. contracts lead higher levels and profits if rates properly specified. In general, lower than those centralized control. The can eliminate this inefficiency by subsidizing certain fraction costs investments. extend setting two competing assemblers knowledge spillover find level control decreases increased competition rate.