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Eran Hanany• IDF general headquarters OR (1991-2001)• TAU Industrial Engineering dept. (2004-)• Visited Northwestern U. (2 yrs), UBC (1 yrs)• Main research areas:

– Game and Decision Theory, Operations Research

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Research methodology:• Qualitative stage:

– players (including policy maker/researcher), decision questions, processes and technology

• Quantitative, game theoretic modeling stage:– feasible actions (including data collection),

uncertainty, information (public/private), outcomes, objectives

– game analysis (analytic/numeric), including solution methods/algorithms

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Current research projects:• Basic research – game theoretic foundations:

– axiomatic decision theory under uncertainty– game theoretic solution concepts

• IE and Operations Management applications:– coordination and contracting of

supply chain, manufacturing, services

Design and Operations of Supply Chains with Transshipments

Eran Hanany, Michal TzurIndustrial Engineering Department

Tel Aviv University, Israel

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Decision Questions

• Preferred supply chain networks (linked partners)

• Optimal operational policies (production, inventory, transportation)

• Required contracts (incentives, operational and payment commitments)

• Required supporting information systems

Network Configuration(Centralized)

Incentive Mechanism (Decentralized)

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Find Optimal System Design

Find Optimal Operational Decisions

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Transshipments

• Movement of stock among locations in the same echelon of the supply chain

• Help reduce inventories and shortages• Improve the flexibility of the system• Often used in practice, using information

systems

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Processes• Several retailers facing random demand for the same item at

distinct markets• Asymmetric demand, cost structure and information

Decisions:• Quantity ordered from the supplier(s) by each retailer before

demand realization• Quantity transshipped from a certain retailer to each other

retailer after demand realization

Goals: • Find the best policy for all retailers together (centralized policy)• Find a coordinating mechanism for a decentralized system

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• When the system is decentralized, each retailer is

operating to maximize their own expected profit, given private information

• Incentive problems exist, so that the system may not be coordinated

• The challenge: design an incentive mechanism such that when the retailers maximize their expected profits, the centralized system solution is achieved

Incentive Mechanism Design Problemin a Decentralized System

Payment to the fund may not always equal payment from the fund.But net expected payments from/to the fund are zero.

Transshipment Fund Mechanism

isc

Fund

Retailer i Retailer j

sjcim jm

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Each transshipment link requires:• Investment that enables information sharing• Establishment of financial and administrative

arrangements (contracts)The number of transshipment links may be limited.

Network Configuration Design

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Potential Implementation

• Increase the organization’s competitive advantage through a better supply chain:– Restructuring the supply chain to better accommodate incentives

in a decentralized system– Reduce supply chain members’ conflicts– Increase the supply chain’s profits

• Decision Support System that will:– determine preferred SC configuration– determine incentive mechanisms and contracts – Recommend operational decisions

• Applicable to medium to large supply chains, such as those in the retail industry