IOE 899: Philip Kaminsky, University of California, Berkeley
"Centralized and Decentralized Warehouse Logistics Collaboration"

Abstract: In an emerging trend in the grocery industry, multiple suppliers and retailers are sharing a warehouse to facilitate horizontal collaboration, in order to lower transportation costs and increase delivery frequencies. Typically, these systems (sometimes known as Mixing and Consolidation Centers) are operated in a decentralized manner, where individual suppliers decide when to make deliveries to the warehouse, and retailers order from the inventory in the warehouse, so that limited effort is made to coordinate the orders of different retailers with the deliveries of different suppliers. Indeed, implementing coordination in this setting could be very challenging. In our research, we characterize the loss due to this decentralized operation, to help assess the value of making the extra effort and investment necessary to implement some form of coordinated control. To do this, we consider a setting where several suppliers ship to several retailers through a shared warehouse, so that outbound trucks from the warehouse contain the products of multiple suppliers. We extend the classic one warehouse multi-retailer analysis of Roundy (1985) to incorporate multiple suppliers and per truck outbound transportation cost from the warehouse, and develop a cost lower bound on centralized operation as the benchmark. We then analyze decentralized versions of the system, in which each retailer and each supplier maximizes his or her own utility in a variety of settings, and analytically bound the ratio of the cost of decentralized to centralized operation, to bound the loss due to decentralization. We find that easy-to-implement decentralized policies are cost efficient, effective, and easy to implement, suggesting that centralization (and thus, coordination effort intended to lead to some of the benefit of centralization) does not bring significant benefits in this setting. Finally, through a computational study, we explore how system parameters impact the relative performance of this system under centralized and decentralized control.

Bio: Phil Kaminsky is Chancellor's Professor in the Department of Industrial Engineering and Operations Research at the University of California, Berkeley, where he also serves as Executive Associate Dean of the College of Engineering. Until assuming his current position, he served as Department Chair of Industrial Engineering and Operations Research, co-director of the Center for Entrepreneurship and Technology, and director of the Initiative for Research in Biopharmaceutical Operations. He received his PhD in Industrial Engineering and Management Science from Northwestern University. Prior to that, he worked in production engineering and control at Merck and Co. His current research focuses on the analysis and development of robust and efficient tools and techniques for design, operation, and risk management in logistics systems and supply chains, with a particular recent focus emphasis on the pharmaceutical and transportation industries, and on logistics collaboration. He is a co-author of "Managing the Supply Chain: the definitive guide for the business professional" and "Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies." He has been an associate editor for Management Science, Production and Operations Management, Naval Research Logistics, Operations Research Letters, and IIE Transactions. He consults in the areas of production planning, logistics, and supply chain management.