Transfer prices for multienterprise supply chain optimization

A key issue in supply chain optimization involving multiple enterprises is the determination of policies that optimize the performance of the supply c hain as a whole while ensuring adequate rewards for each participant. In th is work, a mathematical programming formulation is presented for fair, opti mized profit distribution between members of multienterprise supply chains. The proposed formulation is based on a novel approach applying game theore tical Nash-type models to find the optimal profit level for each enterprise subject to given minimum profit requirements. A modeling framework for dis tributed profit optimization for an n-enterprise supply chain network is fi rst presented. The supply chain planning problem is then formulated as a mi xed-integer nonlinear programming model including a nonlinear Nash-type obj ective function. Model decision variables include intercompany transfer pri ces, production and inventory levels, resource utilization, and flows of pr oducts between echelons, subject to a deterministic sales profile, minimum profit requirements for each enterprise. and various resource constraints. A separable programming approach is finally applied utilizing logarithmic d ifferentiation and approximations of the variables of the objective functio n. The resulting model is of the mixed-integer linear programming form. The applicability of the approach is demonstrated through case studies based o n industrial processes relevant to process systems engineering.