Fair profit distribution in multi-echelon supply chains via transfer prices

Songsong Liu and Lazaros G. Papageorgiou

Omega, 2018, vol. 80, issue C, 77-94

Abstract: The total profit maximisation of a supply chain may result in an uneven and impractical profit distribution among the members. This work addresses the fair profit distribution within a multi-echelon supply chain using transfer prices. A mixed integer linear programming (MILP) model framework is proposed for the optimal production, distribution and capacity planning of a supply chain of an active ingredient (AI), consisting of AI plants, formulation plants and markets. The transfer prices of the AI from AI plants to formulation plants, and those of products from formulation plants to markets are to be optimised. The proportional and max–min fairness criteria are adopted to define fair profit distributions. Considering bargaining powers of supply chain members, game theoretic solution approaches are developed for fair solutions using Nash bargaining and lexicographic maximin principles. Especially, a hierarchical approach is developed to obtain an approximate optimal fair solution efficiently. The applicability and efficiency of the proposed approaches are demonstrated by two examples, including a real world agrochemical supply chain.

Keywords: Supply chains; Fair profit distribution; Transfer price; Mixed integer linear programming; Lexicographic maximin approach; Nash bargaining approach (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305048316307897
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:80:y:2018:i:c:p:77-94

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.omega.2017.08.010

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).