Collaboration and information sharing in global contract manufacturing networks

Abstract

In the semiconductor and telecommunications industry original equipment manufacturers (OEMs) outsource manufacturing to contract manufacturers who are specialist electronic manufacturing service providers. There are a large number of such specialists in existence who collaborate with the original equipment manufacturers at one end and the component suppliers at another end and provide engineering, manufacturing and distribution services. But there do not exist good theoretical developments supporting these real world operations. We consider a global manufacturing system consisting of the contract manufacturer, logistics provider, and OEM and study the influence of sharing scheduling and demand information over the Internet. More specifically, we consider an OEM operating an Internet-based private exchange as a channel master with its contract manufacturers and their suppliers participating by sharing information. We develop a linear program based optimization model for this environment. Specifically, our LP model calculates the quantity of raw materials that is to be procured in each time period from each of the suppliers in order to meet the given demand. We compare these results with traditional make-to-stock linear supply chains with sequential order flow. Our numerical experiments show that information sharing results in cost and inventory reduction.