469123 Optimal Decision-Making of Decentralized Multi-Participant Multi-Period Supply Chains under Uncertainty

Monday, November 14, 2016
Grand Ballroom B (Hilton San Francisco Union Square)
Kefah Hjaila1, Luis Puigjaner2 and Antonio Espuña2, (1)Department of Chemical and Biomolecular Engineering, University of Cantabria, Santander, Spain, (2)Chemical Engineering Department, Universitat Politècnica de Catalunya, Barcelona, Spain

Current Supply Chains (SCs) decision-support models focus on monopolistic situations leaded by one centralizing decision-maker. However, in practice, SCs comprise independent enterprises interacting with their contrasting objectives in a decentralized uncertain environment. Each enterprise decision-maker seeks to optimize its own revenues, by making decisions without complete information about the other enterprises’ policies or their uncertain reaction. Many works have been carried out to optimize the tactical decision-making of decentralized SCs based on cooperative (Cao et al., 2013; Hjaila et al, 2016a) and non-cooperative systems (Yue and You, 2014; Hjaila et al., (2015, 2016b). However, to the best of our knowledge, there is still need to explore the strategic decision-making of decentralized SCs. Since the SC strategic level is a long-term investment, any strategic decision affects the participating enterprise bottom lines. The tradeoff between the payoffs of the different enterprises involved may lead to fundamental changes in the strategic decisions of the participating enterprises, which is a challenge to be explored and analyzed. Such an analysis requires the consideration of the uncertain reaction of any of the participants to the dynamic market.

Accordingly, this work proposes a generic bi-level model based on a non-cooperative non-zero sum non-symmetric role negotiation approach which has been extended from Game Theory. The main purpose is to state the best conditions for long-term expected win-win coordination/collaboration contracts. Different net payoff scenarios which compare the principal game player with the standalone case are analyzed. This analysis is carried out considering the capacity uncertainty of one of the partners, and their effect on the optimal strategic and tactical decisions of each enterprise are evaluated until the best compromise between their long term payoffs is reached. A penalty cost is proposed as if one of the contract options (e.g., quantity demanded at the short-term) reaches a maximum, so as to avoid risks or disruptions in the other player’s SC. As a result, a set of long-term coordination contracts, including the annual resources (flows among the game players, the unit transfer price, and the penalty) is proposed to cope with the different risk-behavior decision-makers.

The proposed approach and its potential are demonstrated using a case study based on a multi-product multi-period global SC, which is analyzed from the points of view of different participants. The proposed generic collaboration model is flexible enough to allow dealing with all possible links between the enterprises SCs nodes. It supports strategic and tactical decisions such as best locations and capacities for new facilities, capacity expansions, equipment technology, raw material acquisition, production, storage, and distribution programs, etc. The results show how the tradeoff between the payoffs of the enterprises involved affects the strategic and tactical decisions of the whole system, thus stressing the necessity of considering this wider view of the different enterprises’ options in order to improve the enterprise-wide coordination.

Acknowledgements: Financial support from the Generalitat de Catalunya (AGAUR FI program and grant 2014-SGR-1092-CEPEiMA) is fully appreciated.



Cao E., Wan C., and Lai M. (2013). Coordination of a supply chain with one manufacturer and multiple competing retailers under simultaneous demand and cost disruptions. Int. J. Prod Econ, 141,425–433.

Hjaila K, Laínez-Aguirre JM, Puigjaner L, and Espuña A. (2015). Decentralized manufacturing supply chains coordination under uncertain competitiveness. Procedia Eng, 132, 942–9.

Hjaila K, Laínez-Aguirre J.M., Zamarripa M, Puigjaner L. and Espuña A. (2016a). Optimal integration of third-parties in a coordinated supply chain management environment, Computers and Chemical Engineering, 86, 48–61.

Hjaila K, Laínez-Aguirre J.M., Puigjaner L. and Espuña, A. (2016b). Scenario-Based Dynamic Negotiation for the Coordination of Multi-Enterprise Supply Chains under Uncertainty. Computers and Chemical Engineering, 91, 445–470.

Yue D, and You F. (2014). Game-Theoretic Modelling and Optimization of Multi-echelon Supply Chain Strategic and Operation under Stackelberg Game and Market Equilibrium. Computers and Chemical Engineering, 71, 347–361.

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