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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14630
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| Title: | Offshore & Onshore contracts |
| Authors: | Sheopuri, Anshul
Zemel, Eitan |
| Keywords: | quality
audit
supply-chain
newsvendor |
| Issue Date: | 2005 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | OM-2005-01 |
| Abstract: | We study the buyer-seller relationship in a supply chain from the
perspective of quality. In particular, we examine situations where
quality levels of the product can be observed, yet, conformance cannot
be enforced unless the buyer engages in costly, legally-binding
activity, which we call audit. We assume that the cost of audit is borne
by the buyer. We examine three types of remedies that can be taken in
case an audit confirms the existence of quality problems, namely â
Full Rebate", â Compensate" and â Repair"
contracts. Under the Full Rebate regime, the seller rebates the buyer
the purchase price of defective units. Under the Compensate regime
(Expectation Damages), the buyer is compensated for his loss of profit
due to defects. Finally, under the Repair regime (Specific Performance),
the seller is made to repair all the defective units at his own expense.
We examine the effects of these contracts on the performance of the
supply-chain, and point out the implications for offshore and onshore
supply networks, respectively. Our results indicate conditions where the
buyer is not motivated to â squeeze" all the profits out of
the supply chain, even in a setting of complete information, and even if
the relationship is short-term. We extend the analysis to examine
supply-chains which include more than one seller or buyer. Also, as part
of the analysis, we study a problem, which we call the â Crime
and Punishment" problem that is interesting in its own right. |
| URI: | http://hdl.handle.net/2451/14630 |
| Appears in Collections: | IOMS: Operations Management Working Papers
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