Balancing partner preferences for logistics costs and carbon footprint in a horizontal cooperation

Horizontal cooperation in logistics has gathered momentum in the last decade as a way to reach economic as well as environmental benefits. In the literature, these benefits are most often assessed through aggregation of demand and supply chain optimization of the partnership as a whole. However, such an approach ignores the individual preferences of the participating companies and forces them to agree on a unique coalition objective. Companies with different (potentially conflicting) preferences could improve their individual outcome by diverging from this joint solution. To account for companies preferences, we propose an optimization framework that integrates the individual partners’ interests directly in a cooperative model. The partners specify their preferences regarding the decrease of logistical costs versus reduced CO2 emissions. Doing so, all stakeholders are more likely to accept the solution, and the long-term viability of the collaboration is improved. First, we formulate a multi-objective, multi-partner location-inventory model. Second, we distinguish two approaches for solving it, each focusing primarily on one of these two dimensions. The result is a set of Pareto-optimal solutions that support the decision and negotiation process. Third, we propose and compare three different approaches to construct a unique solution which is fair and efficient for the coalition. Extensive numerical results not only confirm the potential of collaboration but, more importantly, also reveal valuable managerial insights on the effect of dissimilarities between partners with respect to size, geographical overlap and operational preferences

Benefits of horizontal cooperation in supply chains

This Ph.D. thesis aims at assessing the benefits of horizontal cooperation in logistics and at analyzing how these benefits depend on the markets and partners characteristics. In the past recent years, researchers have presented horizontal cooperation as an efficient and unique way to reduce costs (e.g., transportation, inventory, facility, stock-out) and CO2 emissions. The literature on horizontal cooperation demonstrates a high variation in benefits related to the collaboration, regarding the markets and the partners characteristics as they impact the design of the supply chain network. These benefits are therefore difficult to predict, which can be a significant obstacle for companies considering forming a cooperation. In order to promote horizontal cooperation to companies, it was thus crucial to assess these benefits for each partner. Moreover, while horizontal cooperation has mainly been analyzed at an operational level with transportation decisions in the current literature, the present thesis examines horizontal cooperation at tactical and strategic levels, using location-inventory models to decide the number and location of facilities, the delivery network and the inventory decisions. From different sets of experiments, we present useful insights to companies wishing to collaborate. This Ph.D. thesis also provides valuable tools to select the more favorable partners and to define markets characteristics that should motivate companies to collaborate. Finally, we integrate companies’ individual expectations in our models to understand why some companies leave a collaboration and, therefore, try to improve the long-term stability of collaboration.(ECGE - Sciences économiques et de gestion) -- UCL, 202

Assessing the Environmental Benefits of Horizontal Cooperation using a Location-Inventory Model

As customers are aware of the climate change, eco-friendly strategies have become a competitive advantage for companies. In particular, they are aiming to reduce their carbon footprint along their supply chain. In this context, substantial CO2 emissions reductions can be reached by horizontal cooperation, i.e. the collaboration of companies that work at the same level of the supply chain. In this paper, we evaluate these reductions using a location-inventory model which minimizes facility opening, transportation, cycle inventory, ordering and safety stock costs. To understand the impact of different markets and partners characteristics on the CO2 emissions reductions, we compute a large set of numerical experiments, varying several key parameters (vehicles capacity, facility opening cost, inventory holding cost, order cost, demand variability and distances). Results show that horizontal cooperation reduces CO2 emissions by 16% on average. Moreover, horizontal cooperation is more effective in decreasing the carbon footprint of companies with low facility opening costs and low order costs, carrying expensive products (high unit holding cost) on a market with a high demand variability and a vast market area

Assessing the benefits of horizontal cooperation using a location-inventory model

Horizontal cooperation consists in the collaboration of companies that work at the same level of the supply chain. The literature discusses several real-life cases and experimental studies of horizontal cooperation, showing that these partnerships generate savings. In this paper, to evaluate these savings, we present a location-inventory model, formulated as a conic quadratic mixed integer program, which minimizes facility opening, transportation, cycle inventory, ordering and safety stock costs. This model enables us to assess the synergy value and the evolution of the cost components, comparing the costs of stand-alone companies and horizontal partnerships. In order to better understand the impact of markets and partners characteristics on the synergy value, we conduct a large set of numerical experiments, varying several key parameters (vehicles’ capacity, facility opening cost, inventory holding cost, order cost, demand variability and distances), aiming to offer valuable managerial insights for companies wishing to collaborate. We find that indeed horizontal cooperation can lead to significant savings, with an average coalition gain of 22.5%. Moreover, collaboration is particularly profitable for companies with high facility opening costs and low order costs, carrying small (compared to the vehicle capacity) and inexpensive (low unit holding cost) products in a market with a low demand variability

Reducing CO2 emissions using Horizontal Cooperation

We assess the CO2 emissions reductions that can be reached by horizontal cooperation using a location-inventory model, which minimizes facility opening, transportation, cycle inventory, ordering and safety stock costs. We conduct a large set of numerical experiments, varying several key parameters (vehicles capacity, opening, inventory and ordering costs and demand variability). Finally, we discuss our experimental results and managerial insights