Modeling the Design Phase of Sustainable Supply Chains

Modeling the Design Phase of Sustainable Supply Chains

Petr Fiala (University of Economics, Prague, Czech Republic) and Renata Majovská (University of Finance and Administration, Prague, Czech Republic)
DOI: 10.4018/978-1-7998-2173-1.ch002

Abstract

The objective of supply chain sustainability is to create, protect, and grow long-term environmental, social, and economic value for all stakeholders involved in bringing products and services to market. This chapter creates a comprehensive model and solution methods for designing sustainable supply chains. Sustainable supply chains are modeled as network systems with multiple agents, which are evaluated according to multiple criteria. It is usually impossible to optimize all criteria together in a given system. Searching for a better portfolio of resources leads to reshaping of given system boundaries and better criteria values. Supply chain sustainability is also given by creating equilibrium relationships between agents. Biform games are used for searching an equilibrium in sustainable supply chains. Information sharing reduces inefficiencies and material flows, leading to less environmental pollution.
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Introduction

Supply chain management is a philosophy that provides the tools and techniques enabling organizations to develop strategic focus and achieve sustainable competitive advantage. It presents management with a new focus and way of thinking about how their organization exists and operates within the wider business environment. Supply chain management is now seen as a governing element in strategy and as an effective way of creating value for customers. Sustainability in supply chain management has become a highly relevant topic for researchers and practitioners. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market.

A supply chain is a complex and dynamic supply and demand network of agents, activities, resources, technology and information involved in moving a product or service from supplier to customer. Supply chain structure and behavior is changing dynamically. The suitability of supply chains can be measured by multiple criteria, such as environmental, social, economic, and others.

The evolution of supply chain management recognized that a business process consists of several decentralized firms and that decisions of these different units impact each other’s performance, and thus the performance of the whole supply chain. Each unit will attempt to optimize his own preference. Behavior that is locally efficient can be inefficient from a global point of view.

The main objective of the chapter is to analyze the design of sustainable supply chains and to create a comprehensive model and solution methods for designing sustainable supply chains. To effectively analyze and model decision making in such multiple agent situation with multiple criteria where the outcome depends on the choice made by every agent, multiple criteria analysis and game theory is a natural choice. Multiple criteria analysis is useful for assessing sustainability of supply chains. Game theory has become a useful instrument in the analysis of supply chains with multiple agents, often with conflicting objectives.

Standard multiple criteria approaches focus on valuation of already given systems. De Novo approach focus on designing optimal systems. The approach is based on reformulation of the problem by given prices of resources and the given budget. Searching for a better portfolio of resources leads to a continuous reconfiguration and reshaping of systems boundaries. The De Novo approach was adapted for supply chain design. Current business conditions are changing rapidly. New products are evolving faster. Technological innovations bring improvements to the criteria and the better utilization of available resources. This dynamics must be included in the new models. These changes can lead to beyond tradeoff-free solutions.

Equilibrium search in supply chains is a very important problem. Games are used for behavior modeling of supply chains and focus on allocation of resources, capacities, costs, revenues and profits. There are numerous opportunities to create hybrid models that combine competitive and cooperative behavior. The co-opetition concept combines the advantages of both competition and cooperation into new dynamic, which can be used to not only generate more profits but also to change nature of the business environment in benefit of users. Searching for relationships with complementors (competitors whose products add value to other agents) brings ever new opportunities that bring added values. The co-opetition is based on the biform game theory. Biform games combine non-cooperative and cooperative approaches of the traditional game theory and are promising for modeling behavior of the agents in supply chains. It may form a global view of the coordination problem. Other approaches to coordination such as auctions and contracts are possible to model as specific game theory models. New business practices and information technology make the coordination even closer. Information sharing and strategic partnerships of units can be modeled by different network structures. Supply chain partnership leads to increased information flows, reduced uncertainty, and a more profitable supply chain. The cooperation is based on contacts and formal agreements. Information exchange is very important issue for coordinating actions of units.

The proposed procedure captures these concepts and is flexible and open to other concepts and procedures for designing sustainable supply chains.

Key Terms in this Chapter

Supply Chain: A complex and dynamic network of agents (suppliers, producers, distributors, retailers, and customers), activities, resources, and technology involved in moving a product or service from suppliers to customers. The agents are interconnected by material, financial, information, and decision flows.

Multiple Agents: Independent members of the supply chain with their individual interests and preferences. Conflict of interests can be modeled using game theory.

Biform Games: Biform games combine non-cooperative and cooperative models of the traditional game theory.

De Novo Optimization: An approach for designing an optimal system by reshaping the feasible set. Use only the necessary resources that are bound only by budget.

Supply Chain Management: A process that provides the tools and techniques enabling organizations to develop strategic focus and achieve sustainable competitive advantage. The process can be divided into four phases: design, control, performance evaluation, and performance improvement.

CO-Opetition: A business strategy that goes beyond the rules of competition and cooperation to combine the advantages of both.

Multiple Criteria Analysis: A decision-making analysis that evaluates decision alternatives by multiple criteria as part of the decision-making process.

Supply Chain Sustainability: A holistic view of supply chain processes that addresses the environmental, social, economic and other aspects of a supply chain's components.

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