Incentive Schemes for Centralized Material Planning and Allocation With Asymmetric Information in Construction Supply Chain

Abstract

In construction projects, a centralized management mode can effectively address the material management issues. Specifically, the Material Management Department (MMD) is responsible for material purchase, storage, and allocation based on the demand information reported by contractors. However, material demand are best observed by the contractors. They may manipulate the material takeoff (i.e. misrepresent the material demand) to increase the expected material allocation and avoid the project delay. Motivated by this situation, this paper focuses on the incentives to elicit truthful reporting from contractors. Cases of having prior information and no prior information about the material takeoff, as well as priority allocation and proportional allocation policies are considered. Under the case of having prior information, an incentive scheme is designed based on the Groves payment rule, while under the case of no prior information, two incentive schemes are designed based on the proper scoring rules. The comparison and numerical analysis show that the total three incentive schemes can induce the MMD to choose a system-optimal inventory plan, as well as satisfy the participation constraints of contractors. Besides, the results also demonstrate that prior information is only the prerequisite for implementing the Groves incentive scheme and cannot improve the performance of the whole system in other aspects.