Coordination of a Multi-commodity Supply Chain with Multiple Members Using Flow Networks

A successful supply chain responds to customer´s requirements with minimum cost. In general, organizations which are members of a supply chain are independent of each other and try to maximize their own benefits. Appropriate behavior of each member is necessary but does not suffice to have a competitive supply chain. A supply chain coordination mechanism leads members to behave such that the entire supply chain satisfies customer demand with minimum costs. Previous research works which provided formally analyzed coordination mechanisms have made assumptions about restrictions on the number of supply chain stages and members in each stage. Moreover, multi-commodity case has not been investigated in the context of supply chain coordination yet. This paper exploits flow networks concept to propose a coordination mechanism which is applicable to supply chains with multiple members, multiple stages and presence of multi-commodity case while each commodity is composed of several basic components. In the proposed solution an entity named supply chain optimizer (SCO) which is actually an e-hub, gathers supply chain state information and after necessary computations, informs members of supply chain of optimal decisions about orders. The goal is to minimize operational costs of the whole supply chain while satisfying customer demand.