Title

Allocation of cost savings in a three-level supply chain with demand information sharing : a cooperative game approach

Document Type

Journal article

Source Publication

Operations Research

Publication Date

1-1-2009

Volume

57

Issue

1

First Page

200

Last Page

213

Keywords

inventory/production, information sharing, games/group decisions, cooperative, supply chain management, cooperative game theory, Nash arbitration scheme, constrained core, Shapley value, constrained nucleolus solution, simulation

Abstract

We analyze the problem of allocating cost savings from sharing demand information in a three-level supply chain with a manufacturer, a distributor, and a retailer. To find a unique allocation scheme, we use concepts from cooperative game theory. First, we analytically compute the expected cost incurred by the manufacturer and then use simulation to obtain expected costs for the distributor and the retailer. We construct a three-person cooperative game in characteristic-function form and derive necessary conditions for the stability of each of five possible coalitions. To divide the cost savings between two members, or among three supply chain members, we use various allocation schemes. We present numerical analyses to investigate the impacts of the demand autocorrelation coefficient, ρ, and the unit holding and shortage costs on the allocation scheme.

DOI

10.1287/opre.1080.0528

Print ISSN

0030364X

E-ISSN

15265463

Publisher Statement

Copyright © 2009, INFORMS

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Full-text Version

Publisher’s Version

Recommended Citation

Leng, M., & Parlar, M. (2009). Allocation of cost savings in a three-level supply chain with demand information sharing: A cooperative game approach. Operations Research, 57(1), 200-213. doi: 10.1287/opre.1080.0528