Negotiation-based collaborative planning between supply chains partners

It is often proposed that operations planning in supply chains can be organized in terms of a hierarchical planning system. However, the hierarchical approach assumes a single, centralized planning task for synchronizing operations across the supply chain. As central coordination can usually be realized only for isolated parts of an overall supply chain, the question arises whether there are alternative ways of coordination. In this paper we propose a non-hierarchical, negotiation-based scheme which can be used to synchronize plans between two independent supply chain partners linked by material flows. Assuming that plans are generated based upon mathematical programming models, we show how modified versions of these models can be utilized for evaluating material orders or supplies proposed by the supply chain partner and for generating counter-proposals. Resulting is an iterative, negotiation-like process which establishes and subsequently improves a consistent overall plan. Computational tests suggest that the scheme comes close to optimal results as obtained by central coordination. (C) 2004 Elsevier B.V. All rights reserved.