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Decentral allocation planning in multi-stage customer hierarchies

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  • Vogel, Sebastian
  • Meyr, Herbert

Abstract

This paper presents a novel allocation scheme to improve profits when splitting a scarce product among customer segments. These segments differ by demand and margin and they form a multi-level tree, e.g. according to a geography-based organizational structure. In practice, allocation has to follow an iterative process in which higher level quotas are disaggregated one level at a time, only based on local, aggregate information. We apply well-known econometric concepts such as the Lorenz curve and Theil’s index of inequality to find a non-linear approximation of the profit function in the customer tree. Our resulting Approximate Profit Decentral Allocation (ADA) scheme ensures that a group of truthfully reporting decentral planners makes quasi-coordinated decisions in support of overall profit-maximization in the hierarchy. The new scheme outperforms existing simple rules by a large margin and comes close to the first-best theoretical solution under a central planner and central information.

Suggested Citation

  • Vogel, Sebastian & Meyr, Herbert, 2015. "Decentral allocation planning in multi-stage customer hierarchies," European Journal of Operational Research, Elsevier, vol. 246(2), pages 462-470.
    • Handle: RePEc:eee:ejores:v:246:y:2015:i:2:p:462-470
    DOI: 10.1016/j.ejor.2015.05.009
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    References listed on IDEAS

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    2. Fleischmann, Moritz & Kloos, Konstantin & Nouri, Maryam & Pibernik, Richard, 2020. "Single-period stochastic demand fulfillment in customer hierarchies," European Journal of Operational Research, Elsevier, vol. 286(1), pages 250-266.

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