A Groves Mechanism Approach to Decentralized Design of Supply Chains

In this paper, a generic optimization problem arising in supply chain design is modeled in a game theoretic framework and solved as a decentralized problem using a mechanism design approach. We show that the entities in a supply chain network can be naturally modeled as selfish, rational, and intelligent agents interested in maximizing individual payoffs. This enables us to define a non-cooperative game which we call the supply chain design game. We show that the well known Groves mechanisms can be used to solve the underlying design optimization problem. We illustrate our approach and algorithm with a representative three stage distribution process of a typical automotive supply chain. Our approach suggests a new way of designing supply chains which is decentralized, more natural, and more realistic.

• Type: Conference
• Year: 2005
• Where: WECWIS
• Authors: Dinesh Garg, Yadati Narahari, Earnest Foster, Devadatta M. Kulkarni, Jeffrey D. Tew
• Keywords: Business, Optimization Problem, Supply Chain Design, Supply Chains, WECWIS 2005