Cooperative Replenishment in the Presence of Intermediaries

In complex supply chains, downstream agents often find it beneficial to replenish their required products indirectly from intermediaries rather than directly from the original manufacturers. By aligning their replenishment activities, however, downstream agents could reap the benefits of direct replenishments such as lower purchase prices. This paper constructs a general framework for multi-product cooperative procurement under the presence of supply chain intermediaries. We introduce a sucient condition for the stability of cooperative games associated with these situations. To allocate the joint costs, we suggest Shapley value as it induces complete participation in a class of two-stage games associated with these situations. We show that in order to guarantee the optimal performance of the corresponding decentralized replenishment system, the options for indirect replenishments from the intermediaries must be explicitly considered in the cooperative organization which coordinates the joint replenishments.