Multi-period hedging and coordination in a prefabricated construction supply chain

Yue Zhai, Yelin Fu, Gangyan Xu, George Huang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

32 Citations (Scopus)


In this paper, a multi-period buffer space hedging coordination between a building contractor (BC) and a logistics provider (LP) is investigated. In order to facilitate the application of the construction lead-time hedging (CLTH) strategy, adopted by the BC, extra buffer space needs to be reserved at LP’s intermediate warehouse for contingency usage. This strategy is defined as ‘buffer space hedging (BSH)’ and it increases the pressure of LP on involving extra storage and maintenance cost. Two coordination mechanisms are adopted for solving this BSH problem. One scheme is by introducing a cost-sharing term. A Nash game model is studied to find the individual optimal decisions. Another scheme is a cooperative game model with proper side-payments. We show that adjusting the BSH amount for each review period benefits the supply chain. Both coordination mechanisms enable a win–win outcome. Especially, if system resources are sufficient, the cooperative game outperforms the Nash game. Numerical experiments further demonstrate that the benefit of the proposed model is more significant under the case with lower unit enlarging/rearrangement cost, higher tardiness penalty and unpredictable and uncontrollable construction process-determined assembled and installed prefabs.

Original languageEnglish
Pages (from-to)1949-1971
Number of pages23
JournalInternational Journal of Production Research
Issue number7
Publication statusPublished - 31 Aug 2018
Externally publishedYes


  • construction supply chain management
  • game theory
  • operational hedging
  • supply chain coordination
  • uncertainty

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering


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