Negotiation-based collaborative planning in divergent two-tier supply chains

Advanced Planning Systems are based on the principles of hierarchical planning, which – at least at the top level – grounds on centralized planning. However, central coordination requires access to all relevant information and the power to impose planning results on all organizational units. In consequence it can be realized only for parts of an inter-organizational supply chain, and the question arises whether there exist alternate ways to achieve coordination. In this paper we describe a non-hierarchical, negotiation-based process, which can be used to synchronize plans between independent partners of a two-tier supply chain consisting of one supplier and several buyers. Assuming that all partners generate plans based upon mathematical programming – as in most Advanced Planning Systems at the master planning level – we show how modified versions of these models can be utilized to support the negotiation process by evaluating given purchasing orders or supplies and by generating counter-proposals. Resulting is an iterative, negotiation-like scheme, which establishes and subsequently improves a consistent overall plan based on a limited exchange of information between the supply chain partners.