Supply chain collaboration: A Game theoretic approach to profit allocation
Purpose: This paper aims to develop a theoretical framework for profit allocation, as a mechanism for aligning incentives, in collaborative supply chains. Design/methodology/approach: The issue of profit distribution is approached from a game theoretic perspective. We use the nucleolus concept. The framework is illustrated through a numerical example based on the Beer Game scenario. Findings: The nucleolus offers a powerful perspective to tackle this problem, as it takes into consideration the bargaining power of the different echelons. We show that this framework outperforms classical alternatives. Research limitations/implications: The allocation of the overall supply chain profit is analyzed from a static perspective. Considering the dynamic nature of the problem would be an interesting next step. Practical implications: We provide evidence of drawbacks derived from classical solutions to the profit allocation problem. Real world collaborative supply chains need of robust mechanisms like the one tackled in this work to align incentives from the various actors. Originality/value: Adopting an efficient collaborative solution is a major challenge for supply chains, since it is a wide and complex process that requires an appropriate scheme. Within this framework, profit allocation is essential.