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A Bayesian incentive compatible mechanism for decentralized supply chain formation

Narahari, Y and Srivastava, Nikesh Kumar (2007) A Bayesian incentive compatible mechanism for decentralized supply chain formation. In: 9th IEEE International Conference on E-Commerce Technology/4th IEEE International Conference on Enterprise Computing, E-Commerce and E-Services, JUL 23-26, Tokyo, Japan.

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In this paper we consider a decentralized supply chain formation problem for linear multi-echelon supply chains when the managers of the individual echelons are autonomous, rational, and intelligent. At each echelon, there is a choice of service providers and the specific problem we solve is that of determining a cost-optimal mix of service providers so as to achieve a desired level of end-to-end delivery performance. The problem can be broken up into two sub-problems following a mechanism design approach: (1) Design of an incentive compatible mechanism to elicit the true cost functions from the echelon managers; (2) Formulation and solution of an appropriate optimization problem using the true cost information. In this paper we propose a novel Bayesian incentive compatible mechanism for eliciting the true cost functions. This improves upon existing solutions in the literature which are all based on the classical Vickrey-Clarke-Groves mechanisms, requiring significant incentives to be paid to the echelon managers for achieving dominant strategy incentive compatibility. The proposed solution, which we call SCF-BIC (Supply Chain Formation with Bayesian Incentive Compatibility), significantly reduces the cost of supply chain formation. We illustrate the efficacy of the proposed methodology using the example of a three echelon manufacturing supply chain.

Item Type: Conference Paper
Publisher: IEEE
Additional Information: Copyright 2007 IEEE. Personal use of this material is permitted. However, permission to reprint/republish this material for advertising or promotional purposes or for creating new collective works for resale or redistribution to servers or lists, or to reuse any copyrighted component of this work in other works must be obtained from the IEEE.
Department/Centre: Division of Electrical Sciences > Computer Science & Automation
Date Deposited: 08 Mar 2010 10:12
Last Modified: 19 Sep 2010 05:56
URI: http://eprints.iisc.ac.in/id/eprint/25996

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