IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v22y2020i4p812-831.html
   My bibliography  Save this article

Centralized and Decentralized Warehouse Logistics Collaboration

Author

Listed:
  • Shiman Ding

    (Department of Industrial Engineering and Operations Research, University of California, Berkeley, Berkeley, California 94720)

  • Philip M. Kaminsky

    (Department of Industrial Engineering and Operations Research, University of California, Berkeley, Berkeley, California 94720;)

Abstract

Problem definition : We bound the value of collaboration in a decentralized multisupplier multiretailer setting, where several suppliers ship to several retailers through a shared warehouse, and outbound trucks from the warehouse contain the products of multiple suppliers. Academic/practical relevance : In an emerging trend in the grocery industry, multiple suppliers and retailers share a warehouse to facilitate horizontal collaboration, lower transportation costs, and increase delivery frequencies. Thus far, these so-called mixing and consolidation centers are operated in a decentralized manner, with little effort to coordinate shipments from multiple suppliers with shipments to multiple retailers. Facilitating collaboration in this setting would be challenging (both technically and in terms of the level of trust that would be necessary), so it is useful to understand the potential gains of collaboration. Methodology : We extend the classic one-warehouse multiretailer analysis to incorporate multiple suppliers and per-truck outbound transportation cost from the warehouse and develop a cost lower bound on centralized operation as benchmark. We then analyze decentralized versions of the system, in which each retailer and each supplier maximizes his or her own utility in a variety of settings, and we analytically bound the ratio of the cost of decentralized to centralized operation to bound the loss resulting from decentralization. Results : We find analytical bounds on the performance of several decentralized policies. The best, a decentralized zero-inventory ordering policy, has a cost ratio when compared with a lower bound on the centralized policy of no more than 3/2. In computational studies, we find that costs of decentralized policies are even closer to those of centralized policies. Managerial implications : Easy-to-implement decentralized policies are efficient and effective in this setting, suggesting that centralization (and thus a potentially complex and expensive coordination effort) is unlikely to result in significant benefits.

Suggested Citation

  • Shiman Ding & Philip M. Kaminsky, 2020. "Centralized and Decentralized Warehouse Logistics Collaboration," Manufacturing & Service Operations Management, INFORMS, vol. 22(4), pages 812-831, July.
    • Handle: RePEc:inm:ormsom:v:22:y:2020:i:4:p:812-831
    DOI: 10.1287/msom.2019.0774
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/msom.2019.0774
    Download Restriction: no
    File URL: https://libkey.io/10.1287/msom.2019.0774?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lawrence D. Burns & Randolph W. Hall & Dennis E. Blumenfeld & Carlos F. Daganzo, 1985. "Distribution Strategies that Minimize Transportation and Inventory Costs," Operations Research, INFORMS, vol. 33(3), pages 469-490, June.
    2. Fangruo Chen, 2000. "Optimal Policies for Multi-Echelon Inventory Problems with Batch Ordering," Operations Research, INFORMS, vol. 48(3), pages 376-389, June.
    3. Guillermo Gallego & David Simchi-Levi, 1990. "On the Effectiveness of Direct Shipping Strategy for the One-Warehouse Multi-Retailer R-Systems," Management Science, INFORMS, vol. 36(2), pages 240-243, February.
    4. John A. Muckstadt & Robin O. Roundy, 1987. "Multi-Item, One-Warehouse, Multi-Retailer Distribution Systems," Management Science, INFORMS, vol. 33(12), pages 1613-1621, December.
    5. Abdul-Jalbar, B. & Gutierrez, J. & Puerto, J. & Sicilia, J., 2003. "Policies for inventory/distribution systems: The effect of centralization vs. decentralization," International Journal of Production Economics, Elsevier, vol. 81(1), pages 281-293, January.
    6. Robin Roundy, 1985. "98%-Effective Integer-Ratio Lot-Sizing for One-Warehouse Multi-Retailer Systems," Management Science, INFORMS, vol. 31(11), pages 1416-1430, November.
    7. Albert Wagelmans & Stan van Hoesel & Antoon Kolen, 1992. "Economic Lot Sizing: An O(n log n) Algorithm That Runs in Linear Time in the Wagner-Whitin Case," Operations Research, INFORMS, vol. 40(1-supplem), pages 145-156, February.
    8. Lu Lu & Marc E. Posner, 1994. "Approximation Procedures for the One-Warehouse Multi-Retailer System," Management Science, INFORMS, vol. 40(10), pages 1305-1316, October.
    9. Aucamp, Donald C., 1982. "Nonlinear freight costs in the EOQ problem," European Journal of Operational Research, Elsevier, vol. 9(1), pages 61-63, January.
    10. Joseph S. B. Mitchell, 1987. "98%-Effective Lot-Sizing for One-Warehouse, Multi-Retailer Inventory Systems with Backlogging," Operations Research, INFORMS, vol. 35(3), pages 399-404, June.
    11. William L. Maxwell & John A. Muckstadt, 1985. "Establishing Consistent and Realistic Reorder Intervals in Production-Distribution Systems," Operations Research, INFORMS, vol. 33(6), pages 1316-1341, December.
    12. Chu, Chi-Leung & Leon, V. Jorge, 2008. "Power-of-two single-warehouse multi-buyer inventory coordination with private information," International Journal of Production Economics, Elsevier, vol. 111(2), pages 562-574, February.
    13. Robin Roundy, 1986. "A 98%-Effective Lot-Sizing Rule for a Multi-Product, Multi-Stage Production / Inventory System," Mathematics of Operations Research, INFORMS, vol. 11(4), pages 699-727, November.
    14. Rieksts, Brian Q. & Ventura, Jose A., 2008. "Optimal inventory policies with two modes of freight transportation," European Journal of Operational Research, Elsevier, vol. 186(2), pages 576-585, April.
    15. Khouja, Moutaz & Goyal, Suresh, 2008. "A review of the joint replenishment problem literature: 1989-2005," European Journal of Operational Research, Elsevier, vol. 186(1), pages 1-16, April.
    16. Edward A. Silver, 1976. "A Simple Method of Determining Order Quantities in Joint Replenishments Under Deterministic Demand," Management Science, INFORMS, vol. 22(12), pages 1351-1361, August.
    17. S. Viswanathan & Kamlesh Mathur, 1997. "Integrating Routing and Inventory Decisions in One-Warehouse Multiretailer Multiproduct Distribution Systems," Management Science, INFORMS, vol. 43(3), pages 294-312, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xuefei Shi & Haiyan Wang, 2022. "Design of the cost allocation rule for joint replenishment to an overseas warehouse with a piecewise linear holding cost rate," Operational Research, Springer, vol. 22(5), pages 4905-4929, November.
    2. Niu, Baozhuang & Ruan, Yiyuan & Zeng, Fanzhuo, 2022. "Promoting remanufacturing through subsidy and environment tax: Channel co-opetition, incentive alignment and regulation optimization," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).
    3. Pal Singh, Satender & Adhikari, Arnab & Majumdar, Adrija & Bisi, Arnab, 2022. "Does service quality influence operational and financial performance of third party logistics service providers? A mixed multi criteria decision making -text mining-based investigation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    4. Karaca, Utku & Birbil, Ş. İlker & Aydın, Nurşen & Mullaoğlu, Gizem, 2023. "Masking primal and dual models for data privacy in network revenue management," European Journal of Operational Research, Elsevier, vol. 308(2), pages 818-831.
    5. Jamili, Negin & van den Berg, Pieter L. & de Koster, René, 2022. "Quantifying the impact of sharing resources in a collaborative warehouse," European Journal of Operational Research, Elsevier, vol. 302(2), pages 518-529.
    6. He, Peng & He, Yong & Xu, Henry, 2020. "Buy-online-and-deliver-from-store strategy for a dual-channel supply chain considering retailer’s location advantage," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).
    7. Alikhani, Reza & Eskandarpour, Majid & Jahani, Hamed, 2023. "Collaborative distribution network design with surging demand and facility disruptions," International Journal of Production Economics, Elsevier, vol. 262(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erenguc, S. Selcuk & Simpson, N. C. & Vakharia, Asoo J., 1999. "Integrated production/distribution planning in supply chains: An invited review," European Journal of Operational Research, Elsevier, vol. 115(2), pages 219-236, June.
    2. Lee, Dong Joo & Jeong, In-Jae, 2010. "A distributed coordination for a single warehouse-multiple retailer problem under private information," International Journal of Production Economics, Elsevier, vol. 125(1), pages 190-199, May.
    3. Tamar Cohen-Hillel & Liron Yedidsion, 2018. "The Periodic Joint Replenishment Problem Is Strongly 𝒩𝒫-Hard," Mathematics of Operations Research, INFORMS, vol. 43(4), pages 1269-1289, November.
    4. Eynan, Amit & Kropp, Dean H., 2007. "Effective and simple EOQ-like solutions for stochastic demand periodic review systems," European Journal of Operational Research, Elsevier, vol. 180(3), pages 1135-1143, August.
    5. Adeinat, Hamza & Pazhani, Subramanian & Mendoza, Abraham & Ventura, Jose A., 2022. "Coordination of pricing and inventory replenishment decisions in a supply chain with multiple geographically dispersed retailers," International Journal of Production Economics, Elsevier, vol. 248(C).
    6. Mohd Kamarul Irwan Abdul Rahim & El-Houssaine Aghezzaf & Veronique Limère & Birger Raa, 2016. "Analysing the effectiveness of vendor-managed inventory in a single-warehouse, multiple-retailer system," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(8), pages 1953-1965, June.
    7. Chu, Chi-Leung & Leon, V. Jorge, 2008. "Power-of-two single-warehouse multi-buyer inventory coordination with private information," International Journal of Production Economics, Elsevier, vol. 111(2), pages 562-574, February.
    8. Chung-Piaw Teo & Dimitris Bertsimas, 2001. "Multistage Lot Sizing Problems via Randomized Rounding," Operations Research, INFORMS, vol. 49(4), pages 599-608, August.
    9. Julien Bramel & Shobhna Goyal & Paul Zipkin, 2000. "Coordination of Production/Distribution Networks with Unbalanced Leadtimes," Operations Research, INFORMS, vol. 48(4), pages 570-577, August.
    10. Leandro C. Coelho & Jean-François Cordeau & Gilbert Laporte, 2014. "Thirty Years of Inventory Routing," Transportation Science, INFORMS, vol. 48(1), pages 1-19, February.
    11. Jaeheon Jung & Kamlesh Mathur, 2007. "An Efficient Heuristic Algorithm for a Two-Echelon Joint Inventory and Routing Problem," Transportation Science, INFORMS, vol. 41(1), pages 55-73, February.
    12. Bertazzi, Luca & Speranza, Maria Grazia, 2005. "Improved rounding procedures for the discrete version of the capacitated EOQ problem," European Journal of Operational Research, Elsevier, vol. 166(1), pages 25-34, October.
    13. Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
    14. Luca Bertazzi, 2008. "Analysis of Direct Shipping Policies in an Inventory-Routing Problem with Discrete Shipping Times," Management Science, INFORMS, vol. 54(4), pages 748-762, April.
    15. Abdul-Jalbar, Beatriz & Gutiérrez, José M. & Sicilia, Joaquín, 2009. "A two-echelon inventory/distribution system with power demand pattern and backorders," International Journal of Production Economics, Elsevier, vol. 122(2), pages 519-524, December.
    16. N H Moin & S Salhi, 2007. "Inventory routing problems: a logistical overview," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(9), pages 1185-1194, September.
    17. Wei Huang & H. Edwin Romeijn & Joseph Geunes, 2005. "The continuous‐time single‐sourcing problem with capacity expansion opportunities," Naval Research Logistics (NRL), John Wiley & Sons, vol. 52(3), pages 193-211, April.
    18. Qinan Wang, 2001. "Coordinating Independent Buyers in a Distribution System to Increase a Vendor's Profits," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 337-348, May.
    19. Jia Shu, 2010. "An Efficient Greedy Heuristic for Warehouse-Retailer Network Design Optimization," Transportation Science, INFORMS, vol. 44(2), pages 183-192, May.
    20. Wang, Qinan & Chay, Yiowmin & Wu, Zhang, 2011. "Streamlining inventory flows with time discounts to improve the profits of a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 132(2), pages 230-239, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:22:y:2020:i:4:p:812-831. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.