Side-payment contracts for prefabricated construction supply chain coordination under just-in-time purchasing

Abstract

This paper considers a prefabricated construction supply chain (PCSC) consisting of a project contractor who shoulders the on-site assembly task and orders prefabs from a prefabricated factory. To mitigate the heavy double handling costs associated with early and late delivery of prefabs, the project contractor requires the right quantity and exact type of prefabs are carried to construction sites according to its assembly schedule. This is known as just-in-time purchasing (JITP). However, JITP may increase the pressure on the prefabricated factory to hold excessive inventory or to compress production time. For these reasons, the prefabricated factory may be reluctant to switch to JITP. To initiate the operation of JITP and establish a win-win outcome, side-payment contracts including a delivery-time dependent subsidy and two constant transfer terms are designed as coordinate schemes. Employing Stackelberg, we explore participants’ optimal decisions. The results show that the JITP yields higher profit for PCSC, and the proposed contracts are capable of achieving a win-win coordination. In particular, the constant transfer cost term is relatively equitable to participants, while the constant cost-sharing transfer term outperforms the constant transfer cost term under a high double handling cost. Moreover, the prefabricated factory earns more profit when the double handling cost for early or late delivery is high. Some managerial implications are also obtained and help to strengthen cooperation among participants and promote the sustainable development of the PCSC.