COST ALLOCATION METHODS IN COLLABORATIVE LOGISTICS
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Introduction 7
Chapter 1. Stability problem of cooperative decisions in logistics and supply chain management 9
1.1 Inventory management in logistics and supply chain management 9
1.2 Aggregation and planning in logistics 14
1.3 Collaborative logistics and cooperative decisions 17
1.4 Research Gap 24
Conclusions of chapter 1 26
Chapter 2. Methodology 27
2.1 Quantitative research methods 27
2.1.1 Economic Order Quantity Model 27
2.1.2 Game theoretical approach 28
2.1.3 Cooperative game, Core of the game and Shapley value 29
2.1.4 Contemporary analytical studies 29
2.2 Qualitative research methods 34
2.2.1 Case-study 34
2.2.2 Secondary data 34
2.3 Developed theoretical framework: symmetric case (demand is equal for players in a
coalition) 34
2.3 Extended framework: asymmetric case (demand is not equal for players in a coalition) ...38
2.4 Limitations of the framework 40
Conclusions of chapter 2 41
Chapter 3. Cost allocation model. Case-study on Saint-Petersburg market 43
3.1 Description of cases 43
3.1.1 Case selection process 43
3.1.2 Description of the cases chosen 44
3.1.2.1 St. Petersburg Industrial market by Colliers Int 44
3.1.2.2 Warehouse market report by Knight Frank 46
3.2 Practical implication of the method 48
3.3 Results and outcomes 52
Conclusions of chapter 3 54
Chapter 4. Conclusions and implementations 56
4.1 Theoretical contribution 56
4.2 Managerial implication 57
4.3 Limitations and recommendations for future research 59
Conclusions of chapter 4 60
Reference list: 61
Appendices 66
Introduction
Chapter 1. Stability problem of cooperative decisions in logistics and supply chain management 9
1.1 Inventory management in logistics and supply chain management 9
1.2 Aggregation and planning in logistics 14
1.3 Collaborative logistics and cooperative decisions 17
1.4 Research Gap 24
Conclusions of chapter 1 26
Chapter 2. Methodology 27
2.1 Quantitative research methods 27
2.1.1 Economic Order Quantity Model 27
2.1.2 Game theoretical approach 28
2.1.3 Cooperative game, Core of the game and Shapley value 29
2.1.4 Contemporary analytical studies 29
2.2 Qualitative research methods 34
2.2.1 Case-study 34
2.2.2 Secondary data 34
2.3 Developed theoretical framework: symmetric case (demand is equal for players in a
coalition) 34
2.3 Extended framework: asymmetric case (demand is not equal for players in a coalition) ...38
2.4 Limitations of the framework 40
Conclusions of chapter 2 41
Chapter 3. Cost allocation model. Case-study on Saint-Petersburg market 43
3.1 Description of cases 43
3.1.1 Case selection process 43
3.1.2 Description of the cases chosen 44
3.1.2.1 St. Petersburg Industrial market by Colliers Int 44
3.1.2.2 Warehouse market report by Knight Frank 46
3.2 Practical implication of the method 48
3.3 Results and outcomes 52
Conclusions of chapter 3 54
Chapter 4. Conclusions and implementations 56
4.1 Theoretical contribution 56
4.2 Managerial implication 57
4.3 Limitations and recommendations for future research 59
Conclusions of chapter 4 60
Reference list: 61
Appendices 66
Introduction
Logistics and supply chain management gained a lot of attention in last 45 years from the time it appeared. Previously, the company perceived the transportation as a separate type of operations, but now the concept shifted towards the better firm performance to the higher customer satisfaction rate. This can be reached through different ways: better service quality, closer relationship with customers or collaboration on different levels.
Nowadays, scientific articles on Logistics and Supply Chain Management topics are very popular. However, the collaboration process on supply chain level is not the mostly developed one; it still has some gaps. Some existing articles on the topic of supply chain collaboration are devoted to the transportation problem; others are limited in terms of applicability of the method developed. The last may refer to the type and level of supply chain type collaboration practice is suitable for, the number of players or stability of the cost allocation decision.
Moreover, many authors prove that inventory takes the biggest part of the cost structure in the whole supply chain, while efficient inventory management is key for better performance of companies. That is why this master thesis is devoted to the stable cost allocation mechanism for collaborative inventory management.
Purpose of the study
The research subject is collaborative logistics in the scope of inventory management. Retail companies of Saint Petersburg and Leningrad region are objects of the study. This paper aims to propose a new method of collaborative inventory management for retail companies and find sustainable cost allocation mechanism for this method.
To achieve the goal several objectives are set:
1. Examine trends in existing scientific articles on collaborative logistics to find limitations and gaps
2. Develop a new model for collaborative inventory management
3. Propose cost allocation mechanism suitable for the new method and stable against deviation of any coalition
4. Implement this method on real cases of retail companies
Research questions
In order to complete the tasks, the next research question is formulated:
How can competing companies allocate costs from collaborative decision making in inventory management?
The research question can be answered through applying quantitate and qualitative research methods. For the qualitative research, case-study investigation, secondary sources analysis and benchmarking on contemporary analytical studies are conducted. Observation, analysis of reports and individual interview are provided for qualitative analysis. Economic Order Quantity Model as well as game-theoretical approach are streams for running quantitative analysis. The Core of the game and Shapley Value are two main mechanisms used as quantitative methods for answering the research question.
Structure of the study
This paper consists of 4 chapters. The first chapter is devoted to the stability problem of cooperative decisions in supply chain. As companies tend to change in order to increase the service level and to be more flexible and agile, collaborative initiatives take place. This require stable cost allocation agreements before the implementation of collaborative practices. Chapter 2 describes the methodology needed to fill in the gap and develop new method. It also includes the extended framework that has resulted from the implementation of initial method on real cases. The main difference is the variance in demand of players in a coalition. The third chapter includes explanation of case selectin procedure and represents results and outcomes. The forth chapter formulates the main theoretical and managerial contributions. Moreover, limitations of the research as well as further directions are included in the final chapter. This paper is useful for the companies willing to decrease logistics costs by collaboration in inventory management.
Nowadays, scientific articles on Logistics and Supply Chain Management topics are very popular. However, the collaboration process on supply chain level is not the mostly developed one; it still has some gaps. Some existing articles on the topic of supply chain collaboration are devoted to the transportation problem; others are limited in terms of applicability of the method developed. The last may refer to the type and level of supply chain type collaboration practice is suitable for, the number of players or stability of the cost allocation decision.
Moreover, many authors prove that inventory takes the biggest part of the cost structure in the whole supply chain, while efficient inventory management is key for better performance of companies. That is why this master thesis is devoted to the stable cost allocation mechanism for collaborative inventory management.
Purpose of the study
The research subject is collaborative logistics in the scope of inventory management. Retail companies of Saint Petersburg and Leningrad region are objects of the study. This paper aims to propose a new method of collaborative inventory management for retail companies and find sustainable cost allocation mechanism for this method.
To achieve the goal several objectives are set:
1. Examine trends in existing scientific articles on collaborative logistics to find limitations and gaps
2. Develop a new model for collaborative inventory management
3. Propose cost allocation mechanism suitable for the new method and stable against deviation of any coalition
4. Implement this method on real cases of retail companies
Research questions
In order to complete the tasks, the next research question is formulated:
How can competing companies allocate costs from collaborative decision making in inventory management?
The research question can be answered through applying quantitate and qualitative research methods. For the qualitative research, case-study investigation, secondary sources analysis and benchmarking on contemporary analytical studies are conducted. Observation, analysis of reports and individual interview are provided for qualitative analysis. Economic Order Quantity Model as well as game-theoretical approach are streams for running quantitative analysis. The Core of the game and Shapley Value are two main mechanisms used as quantitative methods for answering the research question.
Structure of the study
This paper consists of 4 chapters. The first chapter is devoted to the stability problem of cooperative decisions in supply chain. As companies tend to change in order to increase the service level and to be more flexible and agile, collaborative initiatives take place. This require stable cost allocation agreements before the implementation of collaborative practices. Chapter 2 describes the methodology needed to fill in the gap and develop new method. It also includes the extended framework that has resulted from the implementation of initial method on real cases. The main difference is the variance in demand of players in a coalition. The third chapter includes explanation of case selectin procedure and represents results and outcomes. The forth chapter formulates the main theoretical and managerial contributions. Moreover, limitations of the research as well as further directions are included in the final chapter. This paper is useful for the companies willing to decrease logistics costs by collaboration in inventory management.
In this master thesis, the ICAC method is described. It helps to allocate costs from horizontal collaboration on inventory level of competing companies using game-theoretic approach and generate surplus. The method fills the gap in a scientific literature on the cost allocation mechanism because the decision is stable as it is the Shapley value inside the Core of the game. It allows a lot of participants in a coalition without any restriction and it creates a motivation for companies to collaborate.
The sensitivity analysis is helpful to see the changes in order size and order frequency. Applying ICAC method, companies will decrease the order size as well as the inventory for this particular product category and place orders less often. It means, that the number of people responsible for the planning and placing orders maybe changed downwards. This as well as the method itself generates the surplus by reducing costs for inventory management.
However, despite the possible benefits, the method has several limitations that can be assumed for future investigations. Firstly, the leadtime assumes to be independent from the order size. Next, the replenishment occurs at the exact timeframe we need it, meaning that the stockouts or surpluses in inventory are forbidden. Finally, the asymmetric method proposed is adopted only for two players. All these factors as well as the willingness to collaborate can be seen as the next improvements of the ICAC method proposed.
The sensitivity analysis is helpful to see the changes in order size and order frequency. Applying ICAC method, companies will decrease the order size as well as the inventory for this particular product category and place orders less often. It means, that the number of people responsible for the planning and placing orders maybe changed downwards. This as well as the method itself generates the surplus by reducing costs for inventory management.
However, despite the possible benefits, the method has several limitations that can be assumed for future investigations. Firstly, the leadtime assumes to be independent from the order size. Next, the replenishment occurs at the exact timeframe we need it, meaning that the stockouts or surpluses in inventory are forbidden. Finally, the asymmetric method proposed is adopted only for two players. All these factors as well as the willingness to collaborate can be seen as the next improvements of the ICAC method proposed.
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