Supply chain collaboration: A Game-theoretic approach to profit allocation

Borja Ponte, Isabel Fernández, Rafael Rosillo, José Parreño, Nazario García

Abstract


Purpose: This paper aims to develop a theoretical framework for profit allocation, as a mechanism for aligning incentives, in collaborative supply chains.

Design/methodology/approach: The issue of profit distribution is approached from a game-theoretic perspective. We use the nucleolus concept. The framework is illustrated through a numerical example based on the Beer Game scenario.

Findings: The nucleolus offers a powerful perspective to tackle this problem, as it takes into consideration the bargaining power of the different echelons. We show that this framework outperforms classical alternatives.

Research limitations/implications: The allocation of the overall supply chain profit is analyzed from a static perspective. Considering the dynamic nature of the problem would be an interesting next step. 

Practical implications: We provide evidence of drawbacks derived from classical solutions to the profit allocation problem. Real-world collaborative supply chains need of robust mechanisms like the one tackled in this work to align incentives from the various actors.

Originality/value: Adopting an efficient collaborative solution is a major challenge for supply chains, since it is a wide and complex process that requires an appropriate scheme. Within this framework, profit allocation is essential.

Keywords


Beer Distribution Game, Game Theory, Incentive Alignment, Profit Allocation, Supply Chain Collaboration.

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DOI: http://dx.doi.org/10.3926/jiem.2084


Creative Commons License

This work is licensed under a Creative Commons Attribution 3.0 Unported License

Journal of Industrial Engineering and Management, 2008-2017

Online ISSN: 2013-0953; Print ISSN: 2013-8423; Online DL: B-28744-2008

Publisher: OmniaScience