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

TL;DR: In this paper, the authors describe a negotiation-based process to synchronize plans between independent partners of a two-tier supply chain consisting of one supplier and several buyers, and 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.

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...

Summary

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.

Full text

HAL Id: hal-00512887
https://hal.archives-ouvertes.fr/hal-00512887
Submitted on 1 Sep 2010
HAL is a multi-disciplinary open access
archive for the deposit and dissemination of sci-
entic research documents, whether they are pub-
lished or not. The documents may come from
teaching and research institutions in France or
abroad, or from public or private research centers.
L’archive ouverte pluridisciplinaire HAL, est
destinée au dépôt et à la diusion de documents
scientiques de niveau recherche, publiés ou non,
émanant des établissements d’enseignement et de
recherche français ou étrangers, des laboratoires
publics ou privés.
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
Page 1 of 35
http://mc.manuscriptcentral.com/tprs Email: ijpr@lboro.ac.uk
International Journal of Production Research
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60

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)).
Page 2 of 35
http://mc.manuscriptcentral.com/tprs Email: ijpr@lboro.ac.uk
International Journal of Production Research
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60

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
Page 3 of 35
http://mc.manuscriptcentral.com/tprs Email: ijpr@lboro.ac.uk
International Journal of Production Research
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60