IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v158y2008i1p161-18210.1007-s10479-007-0239-4.html
   My bibliography  Save this article

Coordination mechanisms for inventory control in three-echelon serial and distribution systems

Author

Listed:
  • Henk Zijm
  • Judith Timmer

Abstract

This paper is concerned with the coordination of inventory control in three-echelon serial and distribution systems under decentralized control. All installations in these supply chains track echelon inventories. Under decentralized control the installations will decide upon base stock levels that minimize their own inventory costs. In general these levels do not coincide with the optimal base stock levels in the global optimum of the chain under centralized control. Hence, the total cost under decentralized control is larger than under centralized control. To remove this cost inefficiency, two simple coordination mechanisms are presented: one for serial systems and one for distribution systems. Both mechanisms are initiated by the most downstream installation(s). The upstream installation increases its base stock level while the downstream installation compensates the upstream one for the increase of costs and provides it with a part of its gain from coordination. It is shown that both coordination mechanisms result in the global optimum of the chain being the unique Nash equilibrium of the corresponding strategic game. Furthermore, all installations agree upon the use of these mechanisms because they result in lower costs per installation. The practical implementation of these mechanisms is discussed. Copyright Springer Science+Business Media, LLC 2008

Suggested Citation

  • Henk Zijm & Judith Timmer, 2008. "Coordination mechanisms for inventory control in three-echelon serial and distribution systems," Annals of Operations Research, Springer, vol. 158(1), pages 161-182, February.
    • Handle: RePEc:spr:annopr:v:158:y:2008:i:1:p:161-182:10.1007/s10479-007-0239-4
    DOI: 10.1007/s10479-007-0239-4
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10479-007-0239-4
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10479-007-0239-4?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo, 2004. "Supply chain coordination by revenue sharing contracts," International Journal of Production Economics, Elsevier, vol. 89(2), pages 131-139, May.
    2. Axsater, Sven & Zhang, Wen-Fa, 1999. "A joint replenishment policy for multi-echelon inventory control," International Journal of Production Economics, Elsevier, vol. 59(1-3), pages 243-250, March.
    3. Wang, Hongwei & Guo, Min & Efstathiou, Janet, 2004. "A game-theoretical cooperative mechanism design for a two-echelon decentralized supply chain," European Journal of Operational Research, Elsevier, vol. 157(2), pages 372-388, September.
    4. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, April.
    5. Gérard P. Cachon, 2001. "Stock Wars: Inventory Competition in a Two-Echelon Supply Chain with Multiple Retailers," Operations Research, INFORMS, vol. 49(5), pages 658-674, October.
    6. van Houtum, G. J. & Inderfurth, K. & Zijm, W. H. M., 1996. "Materials coordination in stochastic multi-echelon systems," European Journal of Operational Research, Elsevier, vol. 95(1), pages 1-23, November.
    7. Gjerdrum, Jonatan & Shah, Nilay & Papageorgiou, Lazaros G., 2002. "Fair transfer price and inventory holding policies in two-enterprise supply chains," European Journal of Operational Research, Elsevier, vol. 143(3), pages 582-599, December.
    8. Hau Lee & Seungjin Whang, 1999. "Decentralized Multi-Echelon Supply Chains: Incentives and Information," Management Science, INFORMS, vol. 45(5), pages 633-640, May.
    9. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    10. 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.
    11. Fangruo Chen & Awi Federgruen & Yu-Sheng Zheng, 2001. "Coordination Mechanisms for a Distribution System with One Supplier and Multiple Retailers," Management Science, INFORMS, vol. 47(5), pages 693-708, May.
    12. Özalp Özer, 2003. "Replenishment Strategies for Distribution Systems Under Advance Demand Information," Management Science, INFORMS, vol. 49(3), pages 255-272, March.
    13. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    14. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    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. Dmitry Ivanov & Maxim Rozhkov, 2020. "Coordination of production and ordering policies under capacity disruption and product write-off risk: an analytical study with real-data based simulations of a fast moving consumer goods company," Annals of Operations Research, Springer, vol. 291(1), pages 387-407, August.

    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. Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
    2. Leng, Mingming & Zhu, An, 2009. "Side-payment contracts in two-person nonzero-sum supply chain games: Review, discussion and applications," European Journal of Operational Research, Elsevier, vol. 196(2), pages 600-618, July.
    3. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    4. Chu, Hongsheng & Wang, Jingchun & Jin, Yihui & Suo, Hansheng, 2006. "Decentralized inventory control in a two-component assembly system," International Journal of Production Economics, Elsevier, vol. 102(2), pages 255-264, August.
    5. Zhou, Yong-Wu, 2009. "Two-echelon supply chain coordination through the unified number of annual orders," International Journal of Production Economics, Elsevier, vol. 117(1), pages 162-173, January.
    6. Wang, Hongwei & Guo, Min & Efstathiou, Janet, 2004. "A game-theoretical cooperative mechanism design for a two-echelon decentralized supply chain," European Journal of Operational Research, Elsevier, vol. 157(2), pages 372-388, September.
    7. Serguei Netessine & Nils Rudi, 2006. "Supply Chain Choice on the Internet," Management Science, INFORMS, vol. 52(6), pages 844-864, June.
    8. Hui Zhao & Vinayak Deshpande & Jennifer K. Ryan, 2005. "Inventory Sharing and Rationing in Decentralized Dealer Networks," Management Science, INFORMS, vol. 51(4), pages 531-547, April.
    9. Fangruo Chen, 1999. "Decentralized Supply Chains Subject to Information Delays," Management Science, INFORMS, vol. 45(8), pages 1076-1090, August.
    10. Toktas-Palut, Peral & Ülengin, Füsun, 2011. "Coordination in a two-stage capacitated supply chain with multiple suppliers," European Journal of Operational Research, Elsevier, vol. 212(1), pages 43-53, July.
    11. Kevin H. Shang & Jing-Sheng Song, 2003. "Newsvendor Bounds and Heuristic for Optimal Policies in Serial Supply Chains," Management Science, INFORMS, vol. 49(5), pages 618-638, May.
    12. Fuqiang Zhang, 2006. "Competition, Cooperation, and Information Sharing in a Two-Echelon Assembly System," Manufacturing & Service Operations Management, INFORMS, vol. 8(3), pages 273-291, March.
    13. Jiafu Tang & Kai-Leung Yung & Iko Kaku & Jianbo Yang, 2008. "The scheduling of deliveries in a production-distribution system with multiple buyers," Annals of Operations Research, Springer, vol. 161(1), pages 5-23, July.
    14. Chaharsooghi, S. Kamal & Heydari, Jafar, 2010. "Supply chain coordination for the joint determination of order quantity and reorder point using credit option," European Journal of Operational Research, Elsevier, vol. 204(1), pages 86-95, July.
    15. Barnes-Schuster, Dawn & Bassok, Yehuda & Anupindi, Ravi, 2006. "Optimizing delivery lead time/inventory placement in a two-stage production/distribution system," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1664-1684, November.
    16. S S Chauhan & J-M Proth & A M Sarmiento & R Nagi, 2006. "Opportunistic supply chain formation from qualified partners for a new market demand," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(9), pages 1089-1099, September.
    17. Son, Joong Y. & Sheu, Chwen, 2008. "The impact of replenishment policy deviations in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 113(2), pages 785-804, June.
    18. Hamidi, Maryam & Liao, Haitao & Szidarovszky, Ferenc, 2016. "Non-cooperative and cooperative game-theoretic models for usage-based lease contracts," European Journal of Operational Research, Elsevier, vol. 255(1), pages 163-174.
    19. Shi Chen & Hau Lee & Kamran Moinzadeh, 2016. "Supply Chain Coordination with Multiple Shipments: The Optimal Inventory Subsidizing Contracts," Operations Research, INFORMS, vol. 64(6), pages 1320-1337, December.
    20. Caldentey, René. & Wein, Lawrence M., 1999. "Analysis of decentralized production-inventory system," Working papers WP 4099-99., Massachusetts Institute of Technology (MIT), Sloan School of Management.

    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:spr:annopr:v:158:y:2008:i:1:p:161-182:10.1007/s10479-007-0239-4. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.