Coordination mechanisms for inventory control in three-echelon serial and distribution systems

This paper is concerned with the coordination of inventory control in three-echelon serial and distribution systems under decentralized control. All installations in these supply chains track echelon inventories. Under decentralized control the installations will decide upon base stock levels that minimize their own inventory costs. In general these levels do not coincide with the optimal base stock levels in the global optimum of the chain under centralized control. Hence, the total cost under decentralized control is larger than under centralized control. \ud To remove this cost inefficiency, two simple coordination mechanisms are presented: one for serial systems and one for distribution systems. Both mechanisms are initiated by the most downstream installation(s). The upstream installation increases its base stock level while the downstream installation compensates the upstream one for the increase of costs and provides it with a part of its gain from coordination. It is shown that both coordination mechanisms result in the global optimum of the chain being the unique Nash equilibrium of the corresponding strategic game. Furthermore, all installations agree upon the use of these mechanisms because they result in lower costs per installation. The practical implementation of these mechanisms is discussed

Leader-follower Game in VMI System with Limited Production Capacity Considering Wholesale and Retail Prices

VMI (Vendor Managed Inventory) is a widely used cooperative inventory policy in supply chains in which each enterprise has its autonomy in pricing. This paper discusses a leader-follower Stackelberg game in a VMI supply chain where the manufacturer, as a leader, produces a single product with a limited production capacity and delivers it at a wholesale price to multiple different retailers, as the followers, who then sell the product in dispersed and independent markets at retail prices. An algorithm is then developed to determine the equilibrium of the Stackelberg game. Finally, a numerical study is conducted to understand the influence of the Stackelberg equilibrium and market related parameters on the profits of the manufacturer and its retailers. Through the numerical example, our research demonstrates that: (a) the market related parameters have significant influence on the manufacturer’ and its retailers’ profits; (b) a retailer’s profit may not be necessarily lowered when it is charged with a higher inventory cost by the manufacturer; (c) the equilibrium of the Stackelberg equilibrium benefits the manufacturer.Stackelberg Game;Supply Chain;Vendor Managed Inventory

Supply chain collaboration

In the past, research in operations management focused on single-firm analysis. Its goal was to provide managers in practice with suitable tools to improve the performance of their firm by calculating optimal inventory quantities, among others. Nowadays, business decisions are dominated by the globalization of markets and increased competition among firms. Further, more and more products reach the customer through supply chains that are composed of independent firms. Following these trends, research in operations management has shifted its focus from single-firm analysis to multi-firm analysis, in particular to improving the efficiency and performance of supply chains under decentralized control. The main characteristics of such chains are that the firms in the chain are independent actors who try to optimize their individual objectives, and that the decisions taken by a firm do also affect the performance of the other parties in the supply chain. These interactions among firms’ decisions ask for alignment and coordination of actions. Therefore, game theory, the study of situations of cooperation or conflict among heterogenous actors, is very well suited to deal with these interactions. This has been recognized by researchers in the field, since there are an ever increasing number of papers that applies tools, methods and models from game theory to supply chain problems

Overview and classification of coordination contracts within forward and reverse supply chains

Among coordination mechanisms, contracts are valuable tools used in both theory and practice to coordinate various supply chains. The focus of this paper is to present an overview of contracts and a classification of coordination contracts and contracting literature in the form of classification schemes. The two criteria used for contract classification, as resulted from contracting literature, are transfer payment contractual incentives and inventory risk sharing. The overview classification of the existing literature has as criteria the level of detail used in designing the coordination models with applicability on the forward and reverse supply chains.Coordination contracts; forward supply chain; reverse supply chain

Measuring the variability in supply chains with the peakedness

This paper introduces a novel way to measure the variability of order flows in supply chains, the peakedness. The peakedness can be used to measure the variability assuming the order flow is a general point pro- cess. We show basic properties of the peakedness, and demonstrate its computation from real-time continuous demand processes, and cumulative demand collected at fixed time intervals as well. We also show that the peakedness can be used to characterize demand, forecast, and inventory variables, to effectively manage the variability. Our results hold for both single stage and multistage inventory systems, and can further be extended to a tree-structured supply chain with a single supplier and multiple retailers. Furthermore, the peakedness can be applied to study traditional inventory problems such as quantifying bullwhip effects and determining safety stock levels. Finally, a numerical study based on real life Belgian supermarket data verifies the effectiveness of the peakedness for measuring the order flow variability, as well as estimating the bullwhip effects.variability, peakedness, supply chain

Coordination mechanisms for inventory control in three-echelon serial and distribution systems

This paper is concerned with the coordination of inventory control in three-echelon serial and distribution systems under decentralized control. All installations in these supply chains track echelon inventories. Under decentralized control the installations will decide upon base stock levels that minimize their own inventory costs. In general these levels do not coincide with the optimal base stock levels in the global optimum of the chain under centralized control. Hence, the total cost under decentralized control is larger than under centralized control. To remove this cost inefficiency, two simple coordination mechanisms are presented: one for serial systems and one for distribution systems. Both mechanisms are initiated by the most downstream installation(s). The upstream installation increases its base stock level while the downstream installation compensates the upstream one for the increase of costs and provides it with a part of its gain from coordination. It is shown that both coordination mechanisms result in the global optimum of the chain being the unique Nash equilibrium of the corresponding strategic game. Furthermore, all installations agree upon the use of these mechanisms because they result in lower costs per installation. The practical implementation of these mechanisms is discussed. \u