Optimal planned leadtimes in two-level assembly system with Inventory Liability Period Contract

Leadtimes uncertainty contributes much to the operational complexity in an assembly system. In order to reduce the impair of stochastic leadtimes, some appropriate inventory policies for components are brought up, which include VMI strategy. Although, VMI arrangement helps to improve the supply chain performance in some degree, there remain two problems to be solved, one is how to lessen suppliers´ inventory pressure, the other is how to coordinate the individual decisions. Considering the practical awkward situation, this paper introduces Inventory Liability Period Contract (ILPC) and then sheds light on planned leadtimes decisions and inventory cost sharing mechanism in an decentralized system. We model the interaction between suppliers and manufacturer as a Stackelberg game which embeds a Nash game about planned leadtimes decisions. Our results show that: Taking the centralized system as a benchmark we can get the optimal planned leadtimes portfolio for an decentralized system; With optimal leadtimes guaranteed, the penalty for suppliers increases when the Inventory Liability Period (ILP) turns longer; Inventory Liability Period Contract can allocate the inventory cost efficiently among gamers in the supply chain.