Cost and inventory benefits of cooperation in multi-period and multi-product supply

Abstract

Cooperation among supply chain members, both horizontally and vertically, has become the norm in practice. Unlike traditional supply chains with members competing to reduce their individual costs, the overall cost of the entire supply chain is minimized in a cooperative supply chain. The savings from cooperation may be shared among the members, while a lower average cost and a lower cost variation is materialized for individual members. The problem is formulated as an integrated flow network and expanded to multi-period and multi-product, with the possibility of holding inventories in a multi-stage, multi-member cooperative supply chain. Simulation results indicate an approximately 26% reduction in total costs of the supply chain, utilizing this formulation over competitive setups. In a multi-period chain, members may hold an inventory or use an inventory policy. As the holding costs increase, the problem decomposes into a single period (just-in-time) again. The disturbing bullwhip effect disappears in cooperative supply chains.

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