Abstract
Members in a traditional supply chain compete to reduce their individual costs. But total cost is minimized in a cooperative, or a corporate managed, supply chain. A lower average cost and a lower cost variation are achieved by cooperative individual members in the long-run. The problem is formulated and solved as an integrated flow network. Previous research is expanded to include multi-period and multi-product cooperative supply chain with possibility of holding inventory in a multi-stage, multi-member setup. A Cooperative Supply Optimizer System (CSOS), a software-based coordination mechanism, is developed for large chains. It gathers operational information from members of the supply chain, and then guides them on ordering decisions for a minimum cost of the entire supply chain. Simulation results indicate an approximately 26% reduction in total supply chain costs, utilizing this formulation over a competitive setup. As the holding costs increase, the problem decomposes into single period (Just-in-time) again. The disturbing bullwhip effect disappears in cooperative supply chains.
Highlights
Supplier management is a critical success factor in achieving sustainable competitive advantage for today’s corporations (Handfield, et al, 1999; Monczka, Trent & Handfield, 1998)
Members in a traditional supply chain competed selfishly to minimize their own local costs, even assuming that the customer demand is given and the price is fixed amongst all the suppliers
The trend has changed towards cooperative supply chains and corporate-managed supply networks, in which the members collaborate to minimize the overall cost of the entire supply chain, in a general case of multimember, multi-stage, multi-product and multi-period
Summary
Supplier management is a critical success factor in achieving sustainable competitive advantage for today’s corporations (Handfield, et al, 1999; Monczka, Trent & Handfield, 1998). The proposed mechanism aims to minimize total operation costs for the entire supply chain, including production, transportation, lost sales, inventory holding, and excess capacity components. Such supply chain is, more competitive by providing lower overall cost products to the end-customers. The CSOS is able to construct and solve the optimization model and send the flow values to the supply chain members These orders are placed to assure the entire supply chain operation works with minimum feasible costs and satisfies customer demands.
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