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Coordinating a Semi-Centralized Global Production Network Through Different Levels of Headquarters Involvement

Liu, Fang; Song, Jing-Sheng

Authors

Jing-Sheng Song



Abstract

Motivated by our experience with a global company, we propose and study the concept of a semi-centralized supply chain and analyze its coordination issues. We focus on a supply chain consisting of a home plant and a foreign branch, both of which are under the same parent company but have considerable autonomy. The role of the home plant is to provide a key component to the foreign branch with guaranteed service (required by the headquarters). Because of a high fixed order cost, the branch orders the component rather infrequently, causing high expediting costs at the home plant. Our purpose is to help the headquarters to improve the supply chain efficiency. We show that under certain conditions, the headquarters can coordinate the supply chain by setting an upper bound on the expediting frequency. If these conditions fail to hold, a simple fixed cost-sharing contract coordinates the supply chain. When centralized control is too costly or infeasible, the headquarters may delegate the contract design rights to the subunits. If the home plant receives the rights, the supply chain performance can be significantly improved (sometimes to near optimality). These results provide guidance to the headquarters on whether, when, and to whom to delegate the coordination initiatives.

Citation

Liu, F., & Song, J. (2017). Coordinating a Semi-Centralized Global Production Network Through Different Levels of Headquarters Involvement. Production and Operations Management, 26(2), 305-319

Journal Article Type Article
Acceptance Date Aug 15, 2016
Online Publication Date Aug 30, 2016
Publication Date 2017-02
Deposit Date Feb 6, 2024
Journal Production and Operations Management
Print ISSN 1059-1478
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 26
Issue 2
Pages 305-319
Public URL https://durham-repository.worktribe.com/output/2226980