Negotiation-Based Collaborative Planning in Divergent Two-Tier Supply Chains
Summary (2 min read)
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)).
- Without any coordinating action, all parties, i.e. each buyer and the supplier, use their planning model with local information only (local optimization).
- A summary and final remarks conclude the paper.
2 Planning model
- Based on the SC setting described above and shown in figure 1, the authors assume that each SC partner uses a multi-level capacitated lot-sizing problem (MLCLSP, e.g. Stadtler (2003)) to generate his local MPS.
- Neglecting setup times and lead times, the MLCLSP can be formulated as follows: Model 1 MLCLSP.
TtMmoCxa tmtmtj
- Thereby, each partner uses her/his set of input parameters (e.g. J, M, Cm,t, am,j), including a local demand forecast Dj,t, and obtains local plan results (e.g. xj,t, ij,t).
- For the sake of simplicity the authors assume that all partners use an identical planning horizon of T periods.
- Since such completely isolated planning yields sub-optimal SC performance as explained above, the question arises how the isolated planning models can be linked to achieve coordination and thus improved SC performance.
- One approach to achieve this linkage without fully centralized control is described in the next section.
3 Model-Based Negotiations
- In this section the authors describe the model-based negotiation scheme.
- Assuming that each buyer k has announced order quantities XOk,j,t, constraints (3.19) and (3.20) are used to incorporate the order proposals into the supplier’s planning situation.
- First, the cost increase above each buyer’s locally optimal plan of accepting the supplier’s last supply proposal (CB,kprop,i-1) and second the cost increase associated with their current counterproposal (CB,kcomp,i).
- In addition, a share of the supplier’s remaining net savings, e.g. a fixed reward for joining the negotiation, should be spread among the buyers for ensuring that each SC partner gains a true advantage.
4 Computational Results
- The performance of the negotiation scheme is explored with an automated version of the negotiation process.
- Available resource capacity, which is input to the planning models (constraints (2.4)), is calculated from the average capacity requirement based on the final demand series and the utilization factors given in Table 2.
- For the remaining 190 test instances the best solution detected after 1200 sec. is used as reference value.
- This variation is primarily caused by test instances whose upstream planning solution is already relatively close the lower benchmark; e.g. about 20% have gaps to central planning of less than 5% as shown in Figure 3.
- Thus, despite the fact that the average cost gap of negotiations to central planning is particularly high in class 3B as shown in Table 3, the negotiation scheme performs constantly well (or even better in case of 3B) in bringing the initial upstream result closer to the benchmark solution of central planning.
5 Conclusions
- In summary, this paper describes a negotiation-based scheme for collaborative planning in two-tier SCs comprising a single supplier and several buyers.
- It rests on the approach developed for two SC partners in Dudek / Stadtler (2004) and extends the negotiation mechanism to cover multiple buyers.
- Compensation and savings share can be incorporated into given contract terms as a bonus, granted when a buyer complies with negotiated order quantities.
- The scheme leaves a limited opportunity for opportunistic behavior, especially at the buyers’ side.
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Citations
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References
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...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)....
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...Cachon (2003) deals with a setting where the buyers compete for the total market demand....
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...Tsay 1999 , Lariviere and Porteus 2001 , Cachon 2003 ), lot-sizing problems in a two-party setting (e....
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...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)....
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...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)....
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...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....
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