Transshipment in decentralized supply chains

Hezarkhani, Behzad (2011) Transshipment in decentralized supply chains. Doctoral (PhD) thesis, Memorial University of Newfoundland.

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Abstract

Transshipment is the practice of sharing common resources among supply chain members in order to mitigate the risks of uncertain demands. The main theme of this thesis is the transshipment problem in decentralized supply chains. The members of decentralized supply chains are self-interested agents who do not necessarily consider the efficiency of the whole chain, and need contracts that specify the details of their cooperation. We provide a systematic overview of coordinating contracts in supply chains before focusing on three specific questions concerning the decentralized transshipment problem. -- The first problem addressed by this thesis is to find coordinating transshipment contracts for supply chains with two agents. We propose a transshipment contract that always coordinates the general two-agent supply chains. This mechanism relies on an implicit pricing mechanism, i.e. agents initially agree on a formula for setting the transshipment prices, and once quantity decisions have been made and prior to the realization of demands, they fix the transshipment prices. -- The second problem is to find coordinating contracts with a pricing mechanism in supply chains with more than two agents. We propose a mechanism for deriving the transshipment prices based on the coordinating allocation rule introduced by Anupindi et al. (2001). With the transshipment prices being set, the agents are free to match their residuals based on their individual preferences. It has been shown that with the transshipment prices derived from the proposed mechanism, the optimum transshipment patterns are always pair-wise stable, i.e. there are no pairs of agents that can be jointly better off by unilaterally deviating from the optimum transshipment patterns. The third problem pertains to the effects of cooperation costs on transshipment games. Despite its practical relevance, the issue of cooperation costs has not been addressed in the supply chain contracting literature thus far. We study the cooperative transshipment game with symmetric newsvendors having normally distributed independent demands. We provide characterization of optimal individual quantities, the maximum expected profits, and individual allocations for these games. These results, though interesting by themselves, are only a point of departure for studying the games with cooperation costs. We provide conditions for stability (non-emptiness of the core) of these games under two governance network structures. i.e. clique and hub.

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