Rebate for Scheduled Delivery, Planning Reliability, and Supply Chain Coordination

An increasing number of construction projects are adopting prefabrication to economize on time, labor, and materials. This method calls for prudent supply chain management, because its performance relies on coordination between the contractor and supplier. Studies in construction management, however, tend to neglect conflicting interests amongst independent agents, while those in supply chain management often rely on assumptions unrelated to a construction supply chain. Bridging the gap between these two streams of research, we investigate a contractual scheme that aligns agents’ decisions for coordination in a construction supply chain. Specifically, we propose rebate pricing for coordination: the supplier grants a rebate if the contractor accepts the shipment in accordance with the original delivery schedule. We show that the optimal rebate fully coordinates the supply chain for the benefit of the supply chain as a whole. We further show that the supplier rebate motivates the contractor to improve its planning reliability