Centralized and Decentralized Warehouse Logistics Collaboration, Extended Version

43 Pages Posted: 27 Dec 2018

See all articles by Shiman Ding

Shiman Ding

University of California, Berkeley

Philip Kaminsky

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

Date Written: December 2, 2018

Abstract

We bound the value of collaboration in a decentralized multi-supplier multi-retailer setting, where several suppliers ship to several retailers through a shared warehouse, and outbound trucks from the warehouse contain the products of multiple suppliers.

Academic/Practical relevance: In an emerging trend in the grocery industry, multiple suppliers and retailers share a warehouse to facilitate horizontal collaboration, in order to lower transportation costs and increase delivery frequencies. Thus far, these so-called Mixing and Consolidation Centers are operated in a decentralized manner, with little effort to coordinate shipments from multiple suppliers with shipments to multiple retailers. Facilitating collaboration in this setting would be challenging (both technically, and in terms of the level of trust that would be necessary), so it is useful to understand the potential gains of collaboration.

Methodology: We extend the classic one warehouse multi-retailer analysis of Roundy (1985) to incorporate multiple suppliers and per truck outbound transportation cost from the warehouse, and develop a cost lower bound on centralized operation as benchmark. We then analyze decentralized versions of the system, in which each retailer and each supplier maximizes his or her own utility in a variety of settings, and we analytically bound the ratio of the cost of decentralized to centralized operation, to bound the loss due to decentralization.

Results: We find analytical bounds on the performance of several decentralized policies. The best, a decentralized zero-inventory ordering policy, has a cost ratio when compared to a lower bound on the centralized policy of no more than 32 . In computational studies, we find that cost of decentralized policies are even closer to those of centralized policies.

Managerial implications: Easy-to-implement decentralized policies are efficient and effective in this setting, suggesting that centralization (and thus, a potentially complex and expensive coordination effort) is unlikely to result in significant benefits.

Keywords: Supply Chain Management, Inventory Theory and Control, Logistics and Transportation

Suggested Citation

Ding, Shiman and Kaminsky, Philip, Centralized and Decentralized Warehouse Logistics Collaboration, Extended Version (December 2, 2018). Available at SSRN: https://ssrn.com/abstract=3298228 or http://dx.doi.org/10.2139/ssrn.3298228

Shiman Ding

University of California, Berkeley ( email )

Philip Kaminsky (Contact Author)

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR) ( email )

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
51
Abstract Views
331
rank
391,754
PlumX Metrics