The impact of delayed fixed-price payment in the decentralised project supply chain

Abstract

This paper investigates the impact of the non-delayed and delayed fixed-price payment contracts in a two-stage decentralised project supply chain consisting of a supplier with stochastic production and delivery time and a manufacturer with stochastic on-site task processing time. We consider a Stackelberg game where the manufacturer acts as the leader to determine the buffer time with forbidden early delivery while the supplier acts as the follower to determine when to start production. We find that the delayed payment contract can postpone the production start time when the buffer time is constant compared to the non-delayed one. However, this finding does not always hold when the buffer time is a decision variable. Besides, in contrast to our intuition that the supplier prefers the non-delayed payment contract while the manufacturer prefers the delayed one, our result shows that there is no specific dominant contract for either the supplier or the manufacturer. It is also found that the basic centralised model yields a higher probability of on-time delivery, but not necessarily a lower cost, than our proposed decentralised models. Furthermore, not all equilibrium decisions derived from the basic model remain robust in the N ( N > 1 ) suppliers’ model.