This talk deals with the issues of conflict and cooperation that arise in a supply chain consisting of two stages: production and distribution. A manufacturer makes products which are transported to retailers (customers) by a distributor. An ideal production distribution) schedule for the manufacturer (distributor) is determined by its cost and capacity considerations. However, the schedules of manufacturer and distributor are in general not well coordinated in practice, this lack of coordination leads to poor overall supply chain performance. In this context, we study a practical problem in just-in-time production environment where a manufacturer produces multiple products and transfers to a nearby warehouse and the distributor bundles the different products at the warehouse according to each retailer's demand requirement and transports the product bundles to the retailers. As the distributor performs the bundling operation at the warehouse, the inventory is the responsibility of the distributor. In this problem, the manufacturer focuses on minimizing variable costs of production. The distributor minimizes its inventory holding cost at the warehouse. The manufacturer's (distributor's) conflict is defined as the relative increase in cost that results from using the distributor's (manufacturer's) optimal schedule. We quantify these conflicts and show that the conflicts are significant. Consequently, we consider several practical scenarios about the level of cooperation between the manufacturer and the distributor. These scenarios define various scheduling problems for the manufacturer, the distributor, and the overall system. We investigate the computational complexity of these scheduling problems. We then solve the problems optimally and demonstrate that the cost savings provided by cooperation between the decision makers are significant. Finally, we discuss incentives and mechanisms for cooperation between the manufacturer and the distributor.
Group for Research in Decision Analysis