How horizontal cooperation can help companies achieve a robust supply chain

Details

Supervisors

Tancrez, Jean-Sébastien

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

The main goal of the present paper is to understand how horizontal cooperation can help companies to develop a robust supply chain where the principal source of uncertainty is demand. For that matter, a robust collaborative location-inventory model, formulated as a conic quadratic mixed-integer program (CQMIP) has been developed to include both strategic and operational decisions. The model can be solved by optimization software packages. Different stages of the supply chain (DCs, transportation and retailers) are considered. Several main costs have been integrated: DCs opening cost, order cost at DCs, cycle inventory cost at DCs, safety stock costs at DCs, transportation cost, cycle inventory cost at retailers and safety stock costs at retailers. The loading rate in cooperation is another important objective of the horizontal cooperation. Computational experiments have been carried out to include 49 retailers, 2 companies and 5 scenarios. In total, 576 experiments are conducted to assess the impact of robustness over the benefits of the joint supply chain. The results of our experiments show that horizontal cooperation from a robust perspective leads to significant cost savings for all the stages of the supply chain. When demand becomes less predictable, we observe a decreasing average synergy value of 34.43%, 32.44% and 32.21% for companies of the same sizes that choose to cooperate. Also, companies with high fixed facility cost, low order cost and high unit holding cost benefit more from the cooperation. Smaller companies have better loading rate while larger companies benefit more in cooperation. Additionally, the greater the difference in company size, the less beneficial the collaboration, with the average synergy value falling from 29.21% to 23.37%. The paper is structured as follows. Sect.2 is the literature review on robust optimization. This section introduces the concept of robust optimization, provides examples on robust optimization supply chain design, describe the current state of the collaborative supply chain design literature review and identify the current gaps. Sect.3 presents the robust collaborative location-inventory model and its notations, its strategic and operational decisions and the CQMIP formulation. Sect.4 presents the computational experiments, the single scenario configuration, the synergy value analysis, the benefits of cooperation for the various stages of the supply chain (DCs, transportation and retailers) impacted by robustness and discusses the findings from additional experiments. Sect.5 conclude the paper.