Analysis of collaborative savings and cost allocation techniques for the cooperative carrier facility location problem

• Published in: The Journal of the Operational Research Society 2016-06, Vol.67 (6), p.853-871
• Main Authors: Verdonck, Lotte, Beullens, Patrick, Caris, An, Ramaekers, Katrien, Janssens, Gerrit K
• Format: Article
• Language: English
• Subjects: Alliances; Business and Management; Case studies; Collaboration; Cooperation; cooperative game theory; cost allocation; Cost control; Customer services; Distribution centers; Efficiency; Experiments; facility location; General Paper; General Papers; horizontal cooperation; Linear programming; Location of industry; Logistics; Management; Market positioning; Operations research; Operations Research/Decision Theory; Studies; Transportation services
• ISSN: 0160-5682; 1476-9360
• DOI: 10.1057/jors.2015.106

Transport companies may cooperate to increase their efficiency levels by, for example, the exchange of orders or vehicle capacity. In this paper a new approach to horizontal carrier collaboration is presented: the sharing of distribution centres (DCs) with partnering organisations. This problem can be classified as a cooperative facility location problem and formulated as an innovative mixed integer linear programme. To ensure cooperation sustainability, collaborative costs need to be allocated fairly to the different participants. To analyse the benefits of cooperative facility location and the effects of different cost allocation techniques, numerical experiments based on experimental design are carried out on a UK case study. Sharing DCs may lead to significant cost savings up to 21.6%. In contrast to the case of sharing orders or vehicles, there are diseconomies of scale in terms of the number of partners and more collaborative benefit can be expected when partners are unequal in size. Moreover, results indicate that horizontal collaboration at the level of DCs works well with a limited number of partners and can be based on intuitively appealing cost sharing techniques, which may reduce alliance complexity and enforce the strength of mutual partner relationships.