A decentralized production-distribution scheduling problem: Solution and analysis

In modern production-distribution supply chains, decentralization has increased significantly, due to increasing production network efficiency. This study investigates a production scheduling and vehicle routing problem in a make-to-order context under a decentralized decision-making structure. Specifically, two different decision makers hierarchically decide the production and distribution schedules to minimize their incurred costs and we formulate the problem as a bi-level mixed-integer optimization model as a static Stackelberg game between manufacturer and distributor. At the upper level, the manufacturer decides its best scheduling under a flexible job-shop manufacturing system, and at the lower level, the distributor decides its distribution scheduling (routing) which influences the upper-level decisions. The model derives the best production-distribution scheduling scheme, with the objective of minimizing the cost of the manufacturer (leader) at the lowest possible cost for the distributor (follower). As the lower level represents a mixed-integer programming problem, it is challenging to solve the resulting bi-level model. Therefore, we extend an efficient decomposition algorithm based on Duplication Method and Column Generation. Finally, to discuss the decentralization value, the results of the presented bi-level model are compared with those of the centralized approach.