Collaborative Research: Mitigating the Cost of Anarchy in Complex Supply Chain Systems

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This project supports a collaborative research program that will lead to an improved understanding of effective coordination of complex decentralized supply chain operations in practice. While decentralized supply chains permit firms to become adept and efficient at performing specific functions, efficient performance of individual supply chain functions does not ensure that the entire system operates as efficiently as possible. For decentralized systems in particular, incentives at different supply chain stages are often misaligned. Despite a high degree of efficiency within each stage, this incentive misalignment can and often does lead to avoidable losses in the system. Coordination among stages becomes a critical factor in mitigating these losses. The main goal of this project is to develop effective, intuitive, and efficiently implementable coordination mechanisms for improving performance and efficiency in complex operations systems. The project will emphasize solutions that can be applied broadly and effectively in industry to systems involving economies-of-scale in activity costs. By evaluating an array of intuitive and easily implemented schemes, this work will lead to an improved understanding of the structure of effective coordination mechanisms in practical and complex supply chain operations environments. By developing new decision models for coordinating operations in complex systems with nonlinear revenue and cost functions, this project will contribute to the state of knowledge on how organizations can (i) achieve coordinated operations in decentralized systems with realistic cost and demand characteristics, and (ii) understand the implications of operations decisions from a systems view. The resulting modeling, analysis, and algorithmic development will also contribute advances in applied parametric optimization theory and large-scale problem solving. Beyond the economic impact of enabling streamlined operations in complex systems, which can create substantial economic value for firms, this work will serve to deepen our understanding of complex systems that operate in a decentralized manner.