Decentralized Supply Chain Formation: A Market Protocol and Competitive Equilibrium Analysis

Abstract

Supply chain formation is the process of determining the structure and terms of exchange relationships to enable a multilevel, multiagent production activity. We present a simple model of supply chains, highlighting two characteristic features: hierarchical subtask decomposition, and resource contention. To decentralize the formation process, we introduce a market price system over the resources produced along the chain. In a competitive equilibrium for this system, agents choose locally optimal allocations with respect to prices, and outcomes are optimal overall. To determine prices, we define a market protocol based on distributed, progressive auctions, and myopic, non-strategic agent bidding policies. In the presence of resource contention, this protocol produces better solutions than the greedy protocols common in the artificial intelligence and multiagent systems literature. The protocol often converges to high-value supply chains, and when competitive equilibria exist, typically to approximate competitive equilibria. However, complementarities in agent production technologies can cause the protocol to wastefully allocate inputs to agents that do not produce their outputs. A subsequent decommitment phase recovers a significant fraction of the lost surplus.

Mechanism design for capacity allocation with price competition

“…This point is a main difference from some works of mechanism design for supply chain models [6,2,20,30,3] except for [11]. Therefore, our results are useful in order to design and analyze B2B marketplaces and supply chain management.…”

A Tutorial on Optimization for Multi-Agent Systems

“…Supply chain formation is a highly relevant problem in which auctions are the method of choice. Quoting [102] "A supply chain is a network of production and exchange relationships that spans multiple levels of production. Whenever we have a producer that buys inputs and sells outputs, we have a supply chain.…”

“…Diminishing the negative eect of these two issues is subject of current research. Thus, approximate distributed solvers, based in parallel auctions [102] or max-sum [104,105], have been proposed for certain types of MMUCAs. Despite their expressiveness, one of the main drawbacks of MMUCAs is that they are not able to manage time information, although there is ongoing work to extend the bidding language and WDP in that direction [106].…”

Supplier Selection in Virtual Enterprise Model of Manufacturing Supply Network

“…These values help them make decisions on which supplier and what quantity of a particular market resource to bid for. The Trading mechanism chosen is based on simultaneous ascending price adjustment as used in (Walsh, 2003) where all consumer agents and agents in the market are only allowed to review their bids upward. However, unlike the SAMP-SB protocol used in that work, where bidding is asynchronous, here, the bidding process is synchronous; this is to reduce the communication overhead of the auction mechanism.…”

“…The objective of this work is to provide a tactical planning framework for supplier selection in a supply network which will aid in balancing between competitive behaviour among autonomous enterprises and the ultimate goal of value delivery maximization in the network. Competitive interaction in the supply network is provided for in this model by means of (k+1)st auction algorithm which is a variant of the Vickery auction (Vickery, 1961) (Walsh, 2003). In order to enhance value delivery, the network is modeled as a Virtual Enterprise Network (VEN).…”