Article: Procurement policy and supplier behavior-OEM vs. ODM Journal: Journal of Business and Management (JBM) 2002 Vol.8 No.2 pp.181 - 197 Abstract: This paper has two purposes. The first one is to describe and contrast the cost-reducing efforts of original equipment manufacturing (OEM) and original design manufacturing (ODM) suppliers given a fixed, cost-plus contract. The result shows that the cost-reducing effort of the OEM supplier is in line with the assembler's requirement while the ODM supplier is able to keep some of the information rent and exerts less effort. The bargaining power of the ODM supplier is also stronger relative to that of the OEM supplier. It is consistent with the degree of information asymmetry residing in the contracting parties. The second purpose is to derive an optimal contract and procurement policy based on a simple institutional setting. The optimal cost-plus contract is obtained and its components deciphered. The drivers behind the supplier's cost-reducing effort are also studied. Inderscience Publishers - linking academia, business and industry through research

Title: Procurement policy and supplier behavior-OEM vs. ODM

Authors: Chiaho Chang

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: This paper has two purposes. The first one is to describe and contrast the cost-reducing efforts of original equipment manufacturing (OEM) and original design manufacturing (ODM) suppliers given a fixed, cost-plus contract. The result shows that the cost-reducing effort of the OEM supplier is in line with the assembler's requirement while the ODM supplier is able to keep some of the information rent and exerts less effort. The bargaining power of the ODM supplier is also stronger relative to that of the OEM supplier. It is consistent with the degree of information asymmetry residing in the contracting parties. The second purpose is to derive an optimal contract and procurement policy based on a simple institutional setting. The optimal cost-plus contract is obtained and its components deciphered. The drivers behind the supplier's cost-reducing effort are also studied.

Keywords: Procurement policy; supplier behavior; OEM; ODM; cost-plus contract.

DOI: 10.1504/JBM.2002.141083

Journal of Business and Management, 2002 Vol.8 No.2, pp.181 - 197

Published online: 05 Sep 2024 *

Title: Procurement policy and supplier behavior-OEM vs. ODM

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