A Market Equilibrium Supply Chain Model for Supporting Self-Manufacturing or Outsourcing Decisions in Prefabricated Construction

Prefabricated construction is a sustainable alternative to traditional on-site construction methods. However, many challenges still exist in the prefabricated construction process. For example, self-manufacturing or outsourcing decisions are vital to the industrial structure and organization of the prefabricated construction industry, and the company’s production and operation decision-making. This paper considers a prefabricated construction supply chain, which is composed of one upstream component manufacturing company and two downstream contractors. The large contractor can get the precast component through self-manufacturing or outsourcing, while the small and medium-sized enterprise (SME) contractor can only buy components from the component manufacturer. A comprehensive game model (Cournot-Stackelberg model) under different decisions, that is, component self-manufacturing or outsourcing, was established. By solving the profit functions of different companies in the prefabricated construction supply chain, the equilibrium solutions of output, price and profit can be achieved. These solutions of equilibrium indicate the optimal decision on the production and operation, and the profit’s boundary conditions. After assuming relevant parameters, the profit levels of the companies in the supply chain are analyzed via a dynamic simulation in the changing process of prefabricated construction market size under different behavioral decisions. The conclusions are as follows: (1) the profit levels of all supply chain enterprises and the whole supply chain are increasing with an increase of market size; (2) the downstream contractors and the whole supply chain have a higher profit level under the component self-manufacturing decision, however, on the contrary, the upstream component suppliers get a higher profit level under the component outsourcing decision; (3) the equilibrium output of the SME contractor is reduced under the outsourcing decision of the large contractor, and the SME contractor is at a disadvantage in market competition, which is particularlyfull of risk when the market size is not big enough, but higher profit level can be expected as the market size increases. According to the results of the game-theoreticanalysis and the numerical simulation, managerial implications are put forward from the angles of extensive publicity, mandatory implementation, strengthening industrial chain integration, and intensifying component factory guidance to promote the development of prefabricated construction. Finally, the main problems which need to be studied further in the future are presented.