Buffer space hedging and coordination in prefabricated construction supply chain management

Abstract

This paper studies a coordination scheme to solve a buffer space hedging (BSH) issue in the prefabricated construction supply chain management (PCSCM). To hedge against unfavorable impacts caused by improper delivery of prefab, the project contractor requires the transportation company to reserve some buffer space in its intermediate warehouse for contingent use (holding safety stock and/or keeping idle). This is termed as BSH strategy. However, this strategy may impact the operation efficiency and potential profit loss for the transportation company. A balance must be kept through a BSH coordination mechanism. Two terms are involved in this mechanism: a BSH amount related cost term is charged by the transportation company to the project contractor and a constant transfer term is used to fairly allocate the system surplus. Three models with different power structures are used to examine the balance. For uneven power settings, two Stackelberg games with alternative decision making sequences are studied. For the equal power setting, a Nash game is presented. It is observed that the proposed coordination mechanism is able to reduce the required BSH amount with win-win coordination. Some interesting managerial implications are also obtained from comparison analysis and numerical studies.