Partial Coordination May Increase Overall Costs in Supply Chains

Abstract

This paper presents a computational study to evaluate the impact of coordinating production and distribution planning in a two-level industrial supply chain. Three planning methods are compared. The first emulates the traditional way of planning. The two other coordinate plans of the supplier and of all the buyers according to the Vendor Managed Inventory (VMI) approach. The monolithic method solves a single model describing the entire optimization problem. The sequential method copies the imperfect VMI practice. All three methods are implemented by means of Mixed Integer Programming models. The results presented prove that the right choice of planning method is very important for overall cost of the supply chain. In contrast to the previous research, it turned out that information sharing without full coordination may even lead to increase in the overall cost. For some companies applying the VMI approach, developing exact models and solving them almost optimally may therefore be very important.