Home

About

Advanced Search

Browse by Discipline

Scientific Societies

E-print Alerts

Add E-prints

E-print Network
FAQHELPSITE MAPCONTACT US


  Advanced Search  

 
A Coordination Mechanism with Fair Cost Allocation for Divergent Multi-Echelon Inventory
 

Summary: A Coordination Mechanism with Fair Cost
Allocation for Divergent Multi-Echelon Inventory
Systems
Judith Timmer
Abstract
This paper is concerned with the coordination of inventory control in divergent multi-
echelon inventory systems under periodic review and decentralized control. All the instal-
lations track echelon inventories. Under decentralized control the installations will decide
upon replenishment policies that minimize their individual inventory costs. In general
these policies do not coincide with the optimal policies of the system under centralized
control. Hence, the total cost under decentralized control is larger than under centralized
control.
To remove this cost inefficiency, a simple coordination mechanism is presented that
is initiated by the most downstream installations. The upstream installation increases
its base stock level while the downstream installation compensates the upstream one for
increased costs and provides it with additional side payments. We show that this mecha-
nism coordinates the system; the global optimal policy of the system is the unique Nash
equilibrium of the corresponding strategic game. Furthermore, the mechanism results in
a fair allocation of the costs; all installations enjoy cost savings.
Key Words: Inventory, coordination mechanism, fair allocation, multi-echelon, stochastic

  

Source: Al Hanbali, Ahmad - Department of Applied Mathematics, Universiteit Twente

 

Collections: Engineering