Impact of Supplier’s Lead Time on Strategic Assembler-Supplier Relationship in Pricing Sensitive Market

Abstract

Assemblers need to react to dynamic market in a timely manner in order to succeed in today’s competitive environment. To achieve timely delivery, some assembler may decide to buy and stock (BS) components from its suppliers and some may choose to contract its suppliers under vendor-managed inventory (VMI). This paper examines the impact of supplier’s lead-time on the assembler’s strategic choice of its partnership with suppliers. Analysis indicates that assembler will generate highest profit under BS and lowest profit under VMI. In addition, assembler will get higher profit by contracting with the lower lead-time supplier under VMI.