Fair transfer price and inventory holding policies in two-enterprise supply chains

A key issue in supply chain optimisation involving multiple enterprises is the determination of policies that optimise the performance of the supply chain as a whole while ensuring adequate rewards for each participant. In this paper, we present a mathematical programming formulation for fair, optim...

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Published in:European journal of operational research Vol. 143; no. 3; pp. 582 - 599
Main Authors: Gjerdrum, Jonatan, Shah, Nilay, Papageorgiou, Lazaros G.
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 16.12.2002
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Elsevier Sequoia S.A
Series:European Journal of Operational Research
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ISSN:0377-2217, 1872-6860
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Abstract A key issue in supply chain optimisation involving multiple enterprises is the determination of policies that optimise the performance of the supply chain as a whole while ensuring adequate rewards for each participant. In this paper, we present a mathematical programming formulation for fair, optimised profit distribution between echelons in a general multi-enterprise supply chain. The proposed formulation is based on an approach applying the Nash bargaining solution for finding optimal multi-partner profit levels subject to given minimum echelon profit requirements. The overall problem is first formulated as a mixed integer non-linear programming (MINLP) model. A spatial and binary variable branch-and-bound algorithm is then applied to the above problem based on exact and approximate linearisations of the bilinear terms involved in the model, while at each node of the search tree, a mixed integer linear programming (MILP) problem is solved. The solution comprises inter-firm transfer prices, production and inventory levels, flows of products between echelons, and sales profiles. The applicability of the proposed approach is demonstrated by a number of illustrative examples based on industrial processes.
AbstractList A key issue in supply chain optimisation involving multiple enterprises is the determination of policies that optimise the performance of the supply chain as a whole while ensuring adequate rewards for each participant. In this paper, we present a mathematical programming formulation for fair, optimised profit distribution between echelons in a general multi-enterprise supply chain. The proposed formulation is based on an approach applying the Nash bargaining solution for finding optimal multi-partner profit levels subject to given minimum echelon profit requirements. The overall problem is first formulated as a mixed integer non-linear programming (MINLP) model. A spatial and binary variable branch-and-bound algorithm is then applied to the above problem based on exact and approximate linearisations of the bilinear terms involved in the model, while at each node of the search tree, a mixed integer linear programming (MILP) problem is solved. The solution comprises inter-firm transfer prices, production and inventory levels, flows of products between echelons, and sales profiles. The applicability of the proposed approach is demonstrated by a number of illustrative examples based on industrial processes.
A key issue in supply chain optimisation involving multiple enterprises is the determination of policies that optimise the performance of the supply chain as a whole while ensuring adequate rewards for each participant. This paper presents a mathematical programming formulation for fair, optimised profit distribution between echelons in a general multi-enterprise supply chain. The proposed formulation is based on an approach applying the Nash bargaining solution for finding optimal multi-partner profit levels subject to given minimum echelon profit requirements. The overall problem is first formulated as a mixed integer non-linear programming model. A spatial and binary variable branch-and-bound algorithm is then applied to the above problem based on exact and approximate linearisations of the bilinear terms involved in the model, while at each node of the search tree, a mixed integer linear programming problem is solved. The solution comprises inter-firm transfer prices, production and inventory levels, flows of products between echelons, and sales profiles. The applicability of the proposed approach is demonstrated by a number of illustrative examples based on industrial processes.
Author Shah, Nilay
Gjerdrum, Jonatan
Papageorgiou, Lazaros G.
Author_xml – sequence: 1
  givenname: Jonatan
  surname: Gjerdrum
  fullname: Gjerdrum, Jonatan
  organization: Centre for Process Systems Engineering, Imperial College of Science, Technology and Medicine, London SW7 2BY, UK
– sequence: 2
  givenname: Nilay
  surname: Shah
  fullname: Shah, Nilay
  email: n.shah@ic.ac.uk
  organization: Centre for Process Systems Engineering, Imperial College of Science, Technology and Medicine, London SW7 2BY, UK
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  givenname: Lazaros G.
  surname: Papageorgiou
  fullname: Papageorgiou, Lazaros G.
  organization: Department of Chemical Engineering, University College London, Torrington Place, London WC1E 7JE, UK
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Transfer pricing
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Snippet A key issue in supply chain optimisation involving multiple enterprises is the determination of policies that optimise the performance of the supply chain as a...
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SubjectTerms Branch-and-bound optimisation
Business process reengineering
Buyers
Game theory
Inventory
Linear programming
Mathematical programming
Multi-enterprise supply chain modelling
Optimization
Profits
Suppliers
Supply chains
Transfer pricing
Title Fair transfer price and inventory holding policies in two-enterprise supply chains
URI https://dx.doi.org/10.1016/S0377-2217(01)00349-6
http://econpapers.repec.org/article/eeeejores/v_3a143_3ay_3a2002_3ai_3a3_3ap_3a582-599.htm
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Volume 143
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