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
185 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)....
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...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...
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...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...
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...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....
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...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....
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97 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....
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...…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…...
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80 citations
Cites background or methods from "Negotiation-Based Collaborative Pla..."
...retail price by using numbers (Guo, Song, and Wang 2010); and a buyer arrives at the cost parameters of the supplier by using historical records of the transactions between them (Egri et al. 2014; Zhao and Zhao 2015). As stated in Wagner (2015), a party may have a belief – correct or incorrect – about the information state of the other....
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...Dudek and Stadtler (2007) propose a negotiation-based process to synchronise the plans between one supplier and several buyers with a minimum exchange of information through proposals and counter-proposals....
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...The majority of the studies in this stream are based on negotiations in which proposals are offered and an agreement is achieved through negotiations after some iterations (Jung, Chen, and Jeong 2005; Albrecht 2017; Dudek and Stadtler 2007; Jung and Jeong 2005)....
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...In other words, objective functions and parameters of each actor are considered locally (Chu and Leon 2008b, 2009; Jung, Chen, and Jeong 2005; Albrecht 2017; Dudek and Stadtler 2007; Jung and Jeong 2005; Taghipour and Frayret 2010)....
[...]
...retail price by using numbers (Guo, Song, and Wang 2010); and a buyer arrives at the cost parameters of the supplier by using historical records of the transactions between them (Egri et al. 2014; Zhao and Zhao 2015). As stated in Wagner (2015), a party may have a belief – correct or incorrect – about the information state of the other. Schneeweiss and Zimmer (2004) investigated a supply chain where a producer uses an anticipation model that replaces unknown parameters with their estimates....
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75 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....
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...…(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’…...
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...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....
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75 citations
References
310 citations
"Negotiation-Based Collaborative Pla..." refers background in this paper
...Moreover, it can fail simply because individual partners are involved in several SCs; for example suppliers typically serve more than a single customer....
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...In order to improve the SC’s performance, partner-specific MPS should be linked and synchronized with each other....
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...There is a large and growing amount of work on decentralized operation of SCs and associated contracting issues....
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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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291 citations
"Negotiation-Based Collaborative Pla..." refers background or methods in this paper
...It rests on the approach developed for two SC partners in Dudek and Stadtler (2004) and extends the negotiation mechanism to cover multiple buyers....
[...]
...be defined as a shift of the entire period quantity to the next or previous period with a supply greater than zero as discussed in Dudek and Stadtler (2004). The optimal cost c to the modified model is abbreviated by...
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...Since each buyer negotiates with one (and the same) supplier only, associated planning steps resemble the case of a two-partner negotiation as described in Dudek and Stadtler (2004) and are only summarized in the following....
[...]
...…supply quantities over periods 1 to t. Based on a lot-sizing heuristic by Simpson and Erengüc (1998), the maximum modification can, e.g. be defined as a shift of the entire period quantity to the next or previous period with a supply greater than zero as discussed in Dudek and Stadtler (2004)....
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...A coordination scheme which synchronizes operations and improves total cost of a single buyer and supplier is described in Dudek and Stadtler (2004)....
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242 citations
239 citations
"Negotiation-Based Collaborative Pla..." refers background in this paper
...by Fleischmann (1999), Corbett and DeCroix (2001), Wu et al. (2002). The compensation and savings share can be incorporated into given supply contracts in the form of a bonus rendered to each buyer, if he truly complies with the agreed to order quantities....
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...Examples of other savings sharing agreements are given e.g. by Fleischmann (1999), Corbett and DeCroix (2001), Wu et al. (2002)....
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235 citations