Collaborative shipping under different cost-sharing agreements

• Published in: European journal of operational research 2017-12, Vol.263 (3), p.827-837
• Main Authors: Padilla Tinoco, Silvia Valeria, Creemers, Stefan, Boute, Robert N.
• Format: Article
• Language: English
• Subjects: Business administration; Can-order policy; Gain sharing; Horizontal collaboration; Humanities and Social Sciences; Joint replenishment; Supply chain management
• ISSN: 0377-2217; 1872-6860
• DOI: 10.1016/j.ejor.2017.05.013

•We study collaborative shipping with 2 companies adopting the can-order policy.•A Markov model is set up to evaluate the individual performance under collaboration.•We measure the impact on each company’s transportation and inventory costs.•Without redistribution of the costs, each company reduces its individual costs.•Simple cost allocation rules may not always lead to individual cost reductions. We study collaborative shipping where two shippers bundle their shipments to share the same transportation vehicle (also known as co-loading). The goal of such a collaboration is to reduce the total number of transports, thereby reducing transportation costs and CO2 emissions. To synchronize the replenishment of both companies, we adopt a can-order joint replenishment policy for both companies, and we analyze how the costs of each individual company are impacted by the collaboration. We consider different agreements to redistribute the costs (or the gains) of the collaboration, ranging from no cost redistribution at all, sharing the transportation costs (or its gains) only, to sharing the total logistics costs (or its gains) that are impacted by the collaboration, i.e., transportation + inventory costs. We show that the stability (and thus the long-term viability) of the partnership strongly depends on the cost-sharing agreement, in combination with the allocation mechanism used to share the costs (or gains) of the coordination. Although most companies focus on the redistribution of transportation costs, we show that this might not lead to a stable situation where each individual company eventually benefits from collaboration.