Allocation of cost savings in a three-level supply chain with demand information sharing : a cooperative game approach

Mingming LENG, Mahmut PARLAR

Research output: Journal PublicationsJournal Article (refereed)

67 Citations (Scopus)


We analyze the problem of allocating cost savings from sharing demand information in a three-level supply chain with a manufacturer, a distributor, and a retailer. To find a unique allocation scheme, we use concepts from cooperative game theory. First, we analytically compute the expected cost incurred by the manufacturer and then use simulation to obtain expected costs for the distributor and the retailer. We construct a three-person cooperative game in characteristic-function form and derive necessary conditions for the stability of each of five possible coalitions. To divide the cost savings between two members, or among three supply chain members, we use various allocation schemes. We present numerical analyses to investigate the impacts of the demand autocorrelation coefficient, ρ, and the unit holding and shortage costs on the allocation scheme.
Original languageEnglish
Pages (from-to)200-213
Number of pages14
JournalOperations Research
Issue number1
Publication statusPublished - 1 Jan 2009



  • Nash arbitration scheme
  • Shapley value
  • constrained core
  • constrained nucleolus solution
  • cooperative
  • cooperative game theory
  • games/group decisions
  • information sharing
  • inventory/production
  • simulation
  • supply chain management

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