Mutual adjustment search with incentive for supply chain planning coordination

Abstract

Supply chains are complex systems, which include several independent organisations with different objectives. A key issue in supply chain management is the coordination of supply chain planning decisions. Supply chain planning systems introduced in the literature can be classified into two main planning systems: centralised and decentralised planning systems. Centralised systems can theoretically optimise supply chain performance, although its implementation requires a high degree of information exchange among supply chain partners. This leads to difficulties when independent partners do not want to share information. In order to address these difficulties, decentralised systems are designed for supply chains where each member is a separate economic entity that makes its operational decisions independently, yet with some minimal level of information sharing. In this paper, we propose a decentralised coordination mechanism based on a negotiation-like mutual adjustment of planning decisions, rooted in mathematical programming. This mechanism, unlike traditional centralised system, involves two enterprises, which interact with each other in order to improve their individual and collective performance. Computational analysis shows that the proposed negotiation-like coordination mechanism leads to near-optimal results when compared to central coordination, while maintaining fairness in terms of revenue sharing.

Keywords:

• supply chain management
• coordination
• incentive mechanism
• mathematical programming
• operations planning