Decentralized supply chain coordination through auction markets: Dynamic lot-sizing in distribution networks

As supply chains become bigger and dynamically structured involving multiple organizations with different interests, it is impossible for a single organization to control a whole supply chain. So, decentralization of decision rights is an inevitable facet of managing modern supply chains. However, controlling in a decentralized mode can fail without appropriate coordination mechanisms. When the agents of a supply chain are not willing to cooperate in terms of information sharing, the whole supply chain can exhibit expensive inefficiencies such as the bullwhip effect. In this paper, we design a trustworthy decentralized coordination mechanism for dynamic lot-sizing in distribution networks, as an effort to motivate information sharing. We design multiple auctions and each auction coordinates the plans of a supplier and its customers by trading the right of managing the supplier's inventory plan. The coordination mechanism makes a reasonable profit and the profit is divided in an agreeable way. Also, the profits are actual because of the capability of supporting a truth-telling environment. Therefore, the designed coordination mechanism is trustworthy in that it guarantees the right benefits to all the agents in return for information sharing.