Improving the efficiency of decentralized supply chains with fixed ordering costs

Joseph Geunes, H. Edwin Romeijn and Wilco van den Heuvel

European Journal of Operational Research, 2016, vol. 252, issue 3, 815-828

Abstract: In a decentralized two-stage supply chain where a supplier serves a retailer who, in turn, serves end customers, operations decisions based on local incentives often lead to suboptimal system performance. Operating decisions based on local incentives may in such cases lead to a lack of system coordination, wherein one party’s decisions put the other party and/or the system at a disadvantage. While models and mechanisms for such problem classes have been considered in the literature, little work to date has considered such problems under nonstationary demands and fixed replenishment order costs. This paper models such two-stage problems as a class of Stackelberg games where the supplier announces a set of time-phased ordering costs to the retailer over a discrete time horizon of finite length, and the retailer then creates an order plan, which then serves as the supplier’s demand. We provide metrics for characterizing the degree of efficiency (and coordination) associated with a solution, and provide a set of easily understood and implemented mechanisms that can increase this efficiency and reduce the negative impacts of uncoordinated decisions.

Keywords: Supply chain management; Supply chain coordination; Bilevel optimization (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:252:y:2016:i:3:p:815-828

DOI: 10.1016/j.ejor.2016.02.004

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