Joint optimization for coordinated configuration of product families and supply chains by a leader-follower Stackelberg game

This paper formulates joint configuration of a product family and its supply chain as a leader-follower Stackelberg game that is enacted through a bi-level hierarchical optimization mechanism to model the coordination between two self-interested decision makers for PFC and SCC. The PFC decisions are modeled as an upper-level optimization problem (called leader) for optimal selection of modules, module instances, and product variants. The SCC decisions are modeled as a lower-level optimization problem (called follower), which responds to decisions of the upper level in order to determine an optimal supply chain configuration and inventory policies. A nonlinear, mixed integer programming model is formulated for the bi-level joint decision in the leader-follower game. To solve the nonlinear optimization model, a bi-level, nested genetic algorithm with constraint reasoning is developed and implemented. A case study of a power transformer product family and supply chain configuration is reported to demonstrate the feasibility and potential of the proposed leader-follower game-theoretic method.