Cooperative Two-stage Model for Distribution Network under Uncertainty

Abstract

In this paper, dealing with supply chain planning including distributors, manufacturers, and retailers, we consider distribution planning of distributors that order manufacturers to produce products and deliver the products to multiple retailers via warehouses. Although Calvete et al.(2014) dealt with a similar problem, we extend the problem into a two-stage model by taking into account uncertainty about demands of the retailers. To reduce losses due to the uncertainty, in the second stage the leftover inventories in some retailers are transshipped to retailers with residual demands after the demands are realized. We develop a computational method for obtaining an optimal solution of the extended two-stage model. Furthermore, assuming coordination of multiple distributors, we formulate a cooperative two-stage model in which the multiple distributors jointly place orders with the manufacturer and distribute the products to the retailers in a coordinated manner, and we allocate the total profit to each distributor using a solution concept of cooperative game theory. We demonstrate the validity of the proposed model through an illustrative numerical example.