Coalition-formation problem for sourcing contract design in supply networks

This article studies a coalition-formation problem for cooperative replenishment with a single supplier and multiple firms. We consider that a vertical cooperation between the supplier and the set of firms is already set, using periodic individual contracts, and we investigate the profitability of a horizontal cooperation between firms when designing collaborative contracts. Given the significant savings that can be realized thanks to horizontal collaboration, the main interest of the potential collaborating firms is to figure out how the collaborating group should be formed and how stable alliances and coalitions should be generated. In this article, the two questions are studied in two business situations focusing either on the collaboration opportunities in the ordering or the transportation process. In each collaborative situation, a decision-making approach is applied to assess the expected profitability of each firm and to determine if firms should form coalitions to maximize their profits. An exact solution method based on a game-theoretic approach is developed, called cooperative replenishment algorithm (CRA), which generates core-stable coalitions for cost savings regarding all partner standpoints. An analytical study of stability conditions regarding the ordering and transportation cost structures were performed to enhance the CRA resolution procedure. Extensive experiments based on realistic instances are provided to validate the performance of the CRA proposed in terms of solution stability and convergence. The computational results also confirm the potential benefit of horizontal collaboration between firms in terms of profit maximization compared to the stand-alone situation.