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Mitigating the Cost of Anarchy in Supply Chain Systems

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  • Romeijn, H.E.
  • Heuvel, W.J. van den
  • Geunes, J.
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    Abstract

    In a decentralized two-stage supply chain where a supplier serves a retailer who, in turn, serves end customers, operations decisions based on local incentives often lead to suboptimal system performance. Operating decisions based on local incentives may in such cases lead to a degree of system disorder or anarchy, wherein one party's decisions put the other party and/or the system at a disadvantage. While models and mechanisms for such problem classes have been considered in the literature, little work to date has considered such problems under nonstationary demands and fixed replenishment order costs. This paper models such two-stage problems as a class of Stackelberg games where the supplier announces a set of time-phased ordering costs to the retailer over a discrete time horizon of finite length, and the retailer then creates an order plan, which then serves as the supplier's demand. We provide metrics for characterizing the degree of efficiency (and anarchy) associated with a solution, and provide a set of easily understood and implemented mechanisms that can increase this efficiency and reduce the negative impacts of anarchic decisions.

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    File URL: http://hdl.handle.net/1765/32132
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    Bibliographic Info

    Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2012-03.

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    Date of creation: 01 Mar 2012
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    Handle: RePEc:dgr:eureir:1765032132

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    Web page: http://www.few.eur.nl/few

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    1. Z. Kevin Weng, 1995. "Channel Coordination and Quantity Discounts," Management Science, INFORMS, vol. 41(9), pages 1509-1522, September.
    2. Charles J. Corbett & Xavier de Groote, 2000. "A Supplier's Optimal Quantity Discount Policy Under Asymmetric Information," Management Science, INFORMS, vol. 46(3), pages 444-450, March.
    3. Harvey M. Wagner & Thomson M. Whitin, 1958. "Dynamic Version of the Economic Lot Size Model," Management Science, INFORMS, vol. 5(1), pages 89-96, October.
    4. Viswanathan, S. & Piplani, Rajesh, 2001. "Coordinating supply chain inventories through common replenishment epochs," European Journal of Operational Research, Elsevier, vol. 129(2), pages 277-286, March.
    5. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    6. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    7. Wagelmans, Albert & Hoesel, Stan van & Kolen, Antoon, 1992. "Economic Lot-Sizing: An O(n log n) algorithm that runs in linear time in the Wagner-Whitin case," Open Access publications from Maastricht University urn:nbn:nl:ui:27-3691, Maastricht University.
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