Capacity Allocation and Scheduling in Supply Chains

We consider a multiple product supply chain where a manufacturer receives orders from several distributors. If the orders cannot all be met from available production capacity, then the manufacturer allocates that capacity and a set of resubmittable orders among the distributors. The distributors may share their allocated capacity among themselves before submitting revised orders. Finally, the manufacturer schedules the revised orders to minimize its cost. We consider three practical coordination issues. First, we estimate the benefit to the manufacturer from considering scheduling costs and constraints in making capacity and order allocation decisions. Second, we estimate the additional profit that the distributors achieve when they share their allocated capacity. Third, we estimate the value of coordination between the manufacturer and the distributors. Our work is among the first to consider all three issues simultaneously. We model scheduling costs and constraints within the manufacturer's capacity allocation problem. We model the distributors' capacity sharing problem as a cooperative game that has properties that are unique within cooperative game theory. Finally, we develop optimal algorithms for all the models defined by the three coordination issues. Our exact evaluation of decisions about the appropriate coordination level improves managers' ability to make those decisions.