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Journal ArticleDOI

Negotiation-Based Collaborative Planning in Divergent Two-Tier Supply Chains

18 Jan 2007-International Journal of Production Research (Taylor & Francis)-Vol. 45, Iss: 2, pp 465-484

Abstract: Advanced Planning Systems are based on the principles of hierarchical planning, which—at least at the top level—grounds on centralized planning. However, central coordination requires access to all relevant information and the power to impose planning results on all organizational units. In consequence it can be realized only for parts of an inter-organizational supply chain, and the question arises whether there exist alternate ways to achieve coordination. In this paper we describe a non-hierarchical, negotiation-based process, which can be used to synchronize plans between independent partners of a two-tier supply chain consisting of one supplier and several buyers. Assuming that all partners generate plans based upon mathematical programming—as in most Advanced Planning Systems at the master planning level—we show how modified versions of these models can be utilized to support the negotiation process by evaluating given purchasing orders or supplies and by generating counter-proposals. Resulting is a...
Topics: Supply chain (58%), Supply chain management (56%), Purchasing (50%)

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Negotiation-Based Collaborative Planning in Divergent
Two-Tier Supply Chains
Gregor Dudek, Hartmut Stadtler
To cite this version:
Gregor Dudek, Hartmut Stadtler. Negotiation-Based Collaborative Planning in Divergent Two-Tier
Supply Chains. International Journal of Production Research, Taylor & Francis, 2007, 45 (02), pp.465-
484. �10.1080/00207540600584821�. �hal-00512887�

For Peer Review Only
Negotiation-Based Collaborative Planning in Divergent Two-
Tier Supply Chains
Journal:
International Journal of Production Research
Manuscript ID:
TPRS-2005-IJPR-0234.R1
Manuscript Type:
Original Manuscript
Date Submitted by the
Author:
20-Nov-2005
Complete List of Authors:
Dudek, Gregor; Darmstadt University of Technology, Department of
Production and Supply Chain Management
Stadtler, Hartmut; University of Hamburg, Institute of Logistics and
Transport
Keywords:
MATH PROGRAMMING, SUPPLY CHAIN MANAGEMENT
Keywords (user):
Collaborative Planning
http://mc.manuscriptcentral.com/tprs Email: ijpr@lboro.ac.uk
International Journal of Production Research

For Peer Review Only
Authors
Gregor Dudek
Holzstrasse 14
Mainz, 55116, Germany
Darmstadt University of Technology
Department of Production and Supply Chain
Management
Phone + 49 170 334 2355
Email: gregor.dudek@gmx.de
Hartmut Stadtler
Von-Melle-Park 5
Hamburg, 20146, Germany
University of Hamburg
Institute of Logistics and Transport
Phone: +49 40 4 28 38-2609
Fax: +49 40 4 28 38-6283
Email: hartmut.stadtler@uni-hamburg.de
Total word count main text: ~ 6.400
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For Peer Review Only
Negotiations-Based Collaborative Planning in Divergent Two-Tier Supply Chains 2
Negotiation-Based Collaborative Planning in
Divergent Two-Tier Supply Chains
Abstract
Advanced Planning Systems are based on the principles of hierarchical planning, which – at
least at the top level – grounds on centralized planning. However, central coordination
requires access to all relevant information and the power to impose planning results on all
organizational units. In consequence it can be realized only for parts of an inter-organizational
supply chain, and the question arises whether there exist alternate ways to achieve
coordination.
In this paper we describe a non-hierarchical, negotiation-based process, which can be used to
synchronize plans between independent partners of a two-tier supply chain consisting of one
supplier and several buyers. Assuming that all partners generate plans based upon
mathematical programming – as in most Advanced Planning Systems at the master planning
level – we show how modified versions of these models can be utilized to support the
negotiation process by evaluating given purchasing orders or supplies and by generating
counter-proposals. Resulting is an iterative, negotiation-like scheme, which establishes and
subsequently improves a consistent overall plan based on a limited exchange of information
between the supply chain partners.
Key Words: Collaborative Planning, Supply Chain Management, Mathematical
Programming
1 Introduction
Coordinated planning and control of operations, i.e. production, storage, and distribution
processes, is a central element of Supply Chain Management (SCM) (Stadtler (2005)).
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For Peer Review Only
Negotiations-Based Collaborative Planning in Divergent Two-Tier Supply Chains 3
One approach to coordinate operations is by centralized planning. Proponents of this approach
usually suggest to implement hierarchical planning such that centralized coordination happens
at a medium-term level, whereas it is left to the owners of the distinct operational processes to
implement the results at the level of short-term planning and control (Shapiro (1999), Rohde /
Meyr / Wagner (2000)).
However, centralized planning requires access to all relevant information. Moreover, it can
fail simply because individual partners are involved in several SCs; for example suppliers
typically serve more than a single customer. Therefore, alternate approaches are required
which establish synchronized operations based on the exchange of few information and an
acceptable coordination effort (e.g. Kilger / Reuter (2005)).
This paper provides such an alternate approach by laying out a negotiation-based process for
aligning operations in a SC comprising several buyers and one common supplier as shown in
Figure 1. Thereby, we focus on the medium-term task of Master Production Scheduling
(MPS) (e.g. Silver / Pyke / Peterson (1998)) or Master Planning (Rohde / Meyr / Wagner
(2000)).
We assume that several end products are sold by each buyer based on dynamic, but
deterministic (or forecasted) demand by period. Each buyer’s operations may comprise
multiple stages and require a set of components that are purchased from the supplier. The
supplier too may face a multi-stage production process. We suppose information is fully
asymmetric, i.e. without additional communication each partner only possesses local
information on his own operations and a local demand forecast. The supplier forecasts the
demand of his end-products based on his best guess of the buyers’ need of input materials. All
partners are assumed to generate their local MPS with mathematical programming models.
Without any coordinating action, all parties, i.e. each buyer and the supplier, use their
planning model with local information only (local optimization). Such isolated planning and
operation typically results in poor performance with unnecessarily high costs, large inventory
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Citations
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Journal ArticleDOI
Hartmut Stadtler1Institutions (1)
01 Jan 2009-OR Spectrum
TL;DR: This paper intends to provide a framework and an overview on the state-of-the-art of collaborative planning and the focus of the literature reviewed here will be on model-based decision support at the operational planning level.
Abstract: Inter-organizational supply chain management incurs the challenge to align the activities of all members which contribute to the value creation of a product or service offered to customers. In general, a supply chain faces the “problem” of information asymmetry, members having their own objectives and constraints which may be in conflict with those of the other members. Still, activities have to be aligned in such a way that the supply chain as a whole stays or becomes competitive while each member wins by cooperating. A number of collaborative planning schemes have been put forward in the last two decades with different assumptions and different areas of application. This paper intends to provide a framework and an overview on the state-of-the-art of collaborative planning. The criteria of the framework will allow us to position existing concepts and to identify areas where more research is needed. The focus of the literature reviewed here will be on model-based decision support at the operational planning level.

180 citations


Cites background or methods from "Negotiation-Based Collaborative Pla..."

  • ... Dudek and Stadtler (2005, 2007) assume that all parties provide requested information truthfully while searching for an overall supply chain optimum (hence, a team perspective applies)....

    [...]

  • ...Table 1 Papers applied to the framework for CP and associated research areas areas Lu (1995) Corbett and de Groote (2000) Barbarosoˆ glu (2000) Ertogral and Wu (2000) Fransoo et al. (2001) Gjerdrum et al. (2002) Karabuk and Wu (2002) Fink (2003, 2004) Schneeweiss and Zimmer (2004) Sucky (2004b) Dudek and Stadtler (2005, 2007) Jung et al. (2005) Shirodkar and Kempf (2006) Exact mathematical X decomposition...

    [...]

  • ...Ertogral and Wu (2000) Fransoo et al. (2001) Karabuk and Wu (2002) Fink (2003,2004) Schneeweiss and Zimmer (2004) Sucky (2004b) Dudek and Stadtler (2005, 2007) Jung et al. (2005) 1. Structural elements 1.1.1 No. of tiers 2 2 3 2 2 2 2 2 2 2...

    [...]

  • ...Lu (1995) Corbett and de Groote (2000) Ertogral and Wu (2000) Fransoo et al. (2001) Karabuk and Wu (2002) Fink (2003, 2004) Schneeweiss and Zimmer (2004) Sucky (2004b) Dudek and Stadtler (2005, 2007) Jung et al. (2005) 3.1....

    [...]

  • ...Table 3 Characteristics for discriminating the decision situation decision situation Lu (1995) Corbett and de Groote (2000) Ertogral and Wu (2000) Fransoo et al. (2001) Fink (2003, 2004) Karabuk and Wu (2002) Schneeweiss and Zimmer (2004) Sucky (2004b) Dudek and Stadtler (2005, 2007) Jung et al. (2005) 2.1....

    [...]


Journal ArticleDOI
Abstract: This study presents a review of optimization models for tactical production planning. The objective of this research is to identify streams and future research directions in this field based on the different classification criteria proposed. The major findings indicate that: (1) the most popular production-planning area is master production scheduling with a big-bucket time-type period; (2) most of the considered limited resources correspond to productive resources and, to a lesser extent, to inventory capacities; (3) the consideration of backlogs, set-up times, parallel machines, overtime capacities and network-type multisite configuration stand out in terms of extensions; (4) the most widely used modelling approach is linear/integer/mixed integer linear programming solved with exact algorithms, such as branch-and-bound, in commercial MIP solvers; (5) CPLEX, C and its variants and Lindo/Lingo are the most popular development tools among solvers, programming languages and modelling languages, respectively...

75 citations


Cites background from "Negotiation-Based Collaborative Pla..."

  • ...…2011; Bard and Nananukul 2009; Boudia and Prins 2009; Boudia, Louly, and Prins 2007, 2008; Caner Taşkın and Tamer Ünal 2009; Chand et al. 2007; Dudek and Stadtler 2007; Van den Heuvel, Borm, and Hamers 2007) considers a supply chain consisting of one production plant and several customers....

    [...]

  • ...…centres (Erromdhani, Eddaly, and Rebai 2012; Torabi and Hassini 2009), vendors (Jung, Jeong, and Lee 2008) or supplying very simple chain networks (Dudek and Stadtler 2007; Fleischhacker and Zhao 2011; Huh, Kachani, and Sadighian 2010; Rizk, Martel, and D’Amours 2006; Selcuk, Fransoo, and De Kok…...

    [...]


Journal ArticleDOI
Abstract: Considering the effects of globalisation, the increase of production and energy costs, and the introduction of advanced technologies, companies need to change their way of doing business if they want to stay competitive. One way of doing this is to establish collaborations with suppliers, distributors and retailers, in order to exchange products efficiently and create value for customers. Nevertheless, the structure of the collaboration must be designed carefully and some coordination mechanisms must be implemented to support this way of doing business. In this article, we first analyse: why companies work together, how they should build their partnership, and which strategies they can implement to facilitate coordination of supply chain activities. We then report a case study of collaboration in the forest industry that shows the benefits of implementing coordination mechanisms as well as the necessity of using incentives to better share these benefits.

69 citations


Cites background from "Negotiation-Based Collaborative Pla..."

  • ...Frayret (2009) as well as Datta and Christopher (2011) mention the problem of decision rights distributed among independent companies and, consequently, the need for better synchronising supply chain operations....

    [...]

  • ...…(2007), Min and Yu (2008), Du et al. (2009), Lehoux et al. (2011) Negotiating the quantity to order and to produce To better synchronise operations Dudek and Stadtler (2005, 2007), Zhu et al. (2007), Jung, Jeong, and Lee (2008) Implementing incentives Wholesale price to influence partners’…...

    [...]

  • ...The authors Dudek and Stadtler (2005, 2007) explore the negotiation process between two actors and adapt their model for a network of one supplier and multiple buyers....

    [...]


Journal ArticleDOI
Jörg Homberger1Institutions (1)
01 Jan 2012-OR Spectrum
TL;DR: A new generic negotiation-based mechanism to coordinate project planning software agents to share resources among projects to come close to results obtained by central solution methods.
Abstract: A new generic negotiation-based mechanism to coordinate project planning software agents to share resources among projects is described. The mechanism, which takes into account asymmetric information and opportunistic behavior, is concretized for the decentralized resource constrained multi-project scheduling problem, and evaluated on 80 benchmark instances taken from the literature and 60 newly generated instances. Computational tests show that the proposed mechanism comes close to results obtained by central solution methods. For twelve benchmark instances new best solutions could be computed.

62 citations


Journal ArticleDOI
Abstract: In the pharmaceutical industry, leftover medications that have not been properly disposed not only damage the environment but also might turn into a peril to people׳s health if being redistributed illegally in undeveloped countries. In contrary, if they are returned to the pharmaceutical producer before their expiry dates, they can be sold at subsidized prices or donated in such countries. In this research, we explore the role of providing incentives to customers in order to facilitate leftover returns and improve the sustainability for a real pharmaceutical reverse supply chain (RSC). Moreover, this research investigates the effect of having a proper coordination method between a producer of medications and third-party logistics (3PL) companies, responsible for collecting unwanted medications from customer zones. Finally, a technique is also proposed to share the RSC׳s saving among the producer and the 3PL companies. The experimental results on a real case study indicate that introducing incentives to customers could decrease the amount of uncollected medications from 18% up to 6.5%. Furthermore, having a proper coordination with 3PL companies could guarantee a full medication recovery.

54 citations


References
More filters

Book
01 Jan 1998-
Abstract: THE CONTEXT AND IMPORTANCE OF INVENTORY MANAGEMENT AND PRODUCTION PLANNING AND SCHEDULING. The Importance of Inventory Management and Production Planning and Scheduling. Strategic Issues. Frameworks for Inventory Management and Production Planning and Scheduling. Forecasting. TRADITIONAL REPLENISHMENT SYSTEMS FOR MANAGING INDIVIDUAL--ITEM INVENTORIES. Order Quantities When Demand is Approximately Level. Lot Sizing for Individual Items with Time--Varying Demand. Individual Items with Probabilistic Demand. SPECIAL CLASSES OF ITEMS. Managing the Most Important (Class A) Inventories. Managing Routine (Class C) Inventories. Style Goods and Perishable Items. THE COMPLEXITIES OF MULTIPLE ITEMS AND MULTIPLE LOCATIONS. Coorinated Replenishments at a Single Stocking Point. Supply Chain Management and Multiechelon Inventories. PRODUCTION PLANNING AND SCHEDULING. An Overall Framework for Production Planning and Scheduling. Medium--Range Aggregate Production Planning. Material Requirements Planning and its Extensions. Just--in--Time and Optimized Production Technology. Short--Range Production Scheduling. Summary. Appendices. Indexes.

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"Negotiation-Based Collaborative Pla..." refers methods in this paper

  • ...Thereby, we focus on the medium-term task of Master Production Scheduling (MPS) (e.g. Silver et al. 1998) or Master Planning (Rohde et al. 2000)....

    [...]


Book
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2,451 citations


Book ChapterDOI
Gérard P. Cachon1Institutions (1)
TL;DR: This chapter extends the newsvendor model by allowing the retailer to choose the retail price in addition to the stocking quantity, and discusses an infinite horizon stochastic demand model in which the retailer receives replenishments from a supplier after a constant lead time.
Abstract: Publisher Summary This chapter reviews the supply chain coordination with contracts. Numerous supply chain models are discussed. In each model, the supply chain optimal actions are identified. The chapter extends the newsvendor model by allowing the retailer to choose the retail price in addition to the stocking quantity. Coordination is more complex in this setting because the incentives provided to align one action might cause distortions with the other action. The newsvendor model is also extended by allowing the retailer to exert costly effort to increase demand. Coordination is challenging because the retailer's effort is noncontractible—that is, the firms cannot write contracts based on the effort chosen. The chapter also discusses an infinite horizon stochastic demand model in which the retailer receives replenishments from a supplier after a constant lead time. Coordination requires that the retailer chooses a large basestock level.

2,451 citations


"Negotiation-Based Collaborative Pla..." refers background in this paper

  • ...Cachon (2003) deals with a setting where the buyers compete for the total market demand....

    [...]

  • ...Tsay 1999 , Lariviere and Porteus 2001 , Cachon 2003 ), lot-sizing problems in a two-party setting (e....

    [...]

  • ...In the following we limit our attention to the particular setting considered here, namely a SC consisting of one supplier and several buyers (for a more broad literature review refer to, e.g. Thomas and Griffin 1996, Erengüc et al. 1999, Tsay et al. 1999, Cachon 2003)....

    [...]

  • ...Publications deal, e.g. with the classical newsvendor problem (see e.g. Tsay 1999, Lariviere and Porteus 2001, Cachon 2003), lot-sizing problems in a two-party setting (e.g. Monahan 1984, Weng 1995), or serial, multi-stage SCs (Chen 1999, Lee and Whang 1999)....

    [...]


Journal ArticleDOI
01 Aug 2000-Management Science
TL;DR: In traditional supply chain inventory management, orders are the only information firms exchange, but information technology now allows firms to share demand and inventory data quickly and inexpensively, and it is concluded that implementing information technology to accelerate and smooth the physical flow of goods through a supply chain is significantly more valuable.
Abstract: In traditional supply chain inventory management, orders are the only information firms exchange, but information technology now allows firms to share demand and inventory data quickly and inexpensively. We study the value of sharing these data in a model with one supplier, N identical retailers, and stationary stochastic consumer demand. There are inventory holding costs and back-order penalty costs. We compare a traditional information policy that does not use shared information with a full information policy that does exploit shared information. In a numerical study we find that supply chain costs are 2.2% lower on average with the full information policy than with the traditional information policy, and the maximum difference is 12.1%. We also develop a simulation-based lower bound over all feasible policies. The cost difference between the traditional information policy and the lower bound is an upper bound on the value of information sharing: In the same study, that difference is 3.4% on average, and no more than 13.8%. We contrast the value of information sharing with two other benefits of information technology, faster and cheaper order processing, which lead to shorter lead times and smaller batch sizes, respectively. In our sample, cutting lead times nearly in half reduces costs by 21% on average, and cutting batches in half reduces costs by 22% on average. For the settings we study, we conclude that implementing information technology to accelerate and smooth the physical flow of goods through a supply chain is significantly more valuable than using information technology to expand the flow of information.

1,709 citations


"Negotiation-Based Collaborative Pla..." refers background in this paper

  • ...For example, Cachon and Fisher (2000) study the value of information sharing when N identical buyers face stationary stochastic demand for a single product which they replenish from the supplier....

    [...]


Journal Article
Abstract: Tremendous variability in orders along the supply chain can plague companies trying to eliminate excess inventory, forecast product demand, and simply make their supply chain more efficient. What causes the bullwhip effect that distorts information as it is transmitted up the chain? The authors identify four major causes: 1. Demand forecast updating. As each entity along the chain places an order, it replenishes stock and includes some safety stock. With long lead times, there may be weeks of safety stocks, which make the fluctuation in demand more significant. 2. Order batching. Companies may place orders in batches, often to avoid the cost of processing orders more frequently or the high transportation costs for less-than-truckload orders. Suppliers, in turn, face erratic streams of orders, and the bullwhip effect occurs. When order cycles overlap, the effect is even more pronounced. 3. Price fluctuation. Special promotions and price discounts result in customers buying in large quantities and stocking up. When prices return to normal, customers stop buying. As a result, their buying pattern does not reflect their consumption pattern. 4. Rationing and shortage gaming. If product demand exceeds supply, a manufacturer may ration its products. Customers, in turn, may exaggerate their orders to counteract the rationing. Eventually, orders will disappear and cancellations pour in, making it impossible for the manufacturer to determine the real demand for its product. The authors suggest several ways in which companies can counteract the bullwhip effect: 1. Avoid multiple demand forecast updates. Companies can make demand data from downstream available upstream. Or they can bypass the downstream site by selling directly to the consumer. Also, they can improve operational efficiency to reduce highly variable demand and long resupply lead times. 2. Break order batches. Companies can use electronic data interchange to reduce the cost of placing orders and place orders more frequently. And they can ship assortments of products in a truckload to counter high transportation costs or use third-party logistics companies to handle shipping. 3. Stabilize prices. Manufacturers can reduce the frequency and level of wholesale price discounting to prevent customers from stockpiling. They can also use activity-based costing systems so they can recognize when companies are buying in bulk. 4. Eliminate gaming in shortage situations. In shortages, suppliers can allocate product based on past sales records, rather than on orders, so customers don't exaggerate their orders. They can also eliminate their generous return policies, so retailers are less likely to cancel orders. Only by thoroughly understanding the underlying causes of the bullwhip effect, say the authors, can companies counteract and control it.

1,500 citations


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