Hierarchical coordination mechanisms within the supply chain
The paper analyses operational coordination mechanisms between a producer and a supplier within a supply chain having private local information. For a make to order production setting the coordination is achieved through the combined use of a task-oriented and a control-oriented type of instrument. The task-oriented instrument describes the producers procurement policy for components whereas the control-oriented instrument is made up by penalty costs for non-correct delivery. In using both of these instruments various coordination schemes are employed in making use of the theory of hierarchical planning. Though it is assumed that producer and supplier possess some private information they are not taken to behave antagonistically. The question, which information should be disclosed, is of central importance for the overall performance of the supply chain and is the main focus of an extensive quantitative analysis which finally is used to give recommendations for the design of a supply contract.
make to order production hierarchical planning supply chain management distributed decision making information asymmetry