Vertical Collaboration in a Two-Level Supply Chain: An Agent-Based Modeling Approach

Collaboration in the supply chain is nowadays seen in the scientific community as the “next best thing” in supply chain optimization (Ballot, 2015; Barratt & Oliveira, 2001; Barratt, 2004; Ireland & Bruce, 2000). Although widely investigated and often mentioned in literature, the concept of supply chain collaboration is not precisely defined (Barratt, 2004). It can be roughly described as: collaboration in the supply chain are all the joint efforts of the stakeholders within a supply chain to improve the overall performance(Barratt & Oliveira, 2001; Barratt, 2004). Procter & Gamble (P&G) can be regarded as one of the largest fast moving consumer goods (FMCG) companies in the world (MBASkool, 2015). Although performing quite well, P&G feels that they can still improve their supply chain (Olsthoorn, 2015). They have expressed the feeling that their main challenge lies in improving their supply chain while being more externally focused (Demange, 2015). P&G have therefore issued this specific project; assessing the effects of vertical collaboration in (one of) their supply chain(s) and provide a handle on how to implement this concept. This master thesis report discusses the effect of vertical collaboration in a two-level supply chain; collaboration between manufacturer (Procter & Gamble) and the retailer (Retailer X). With the help of a case-study on the product Dreft Automatic Dishwashing (ADW), the goal was to quantify the effect of increased vertical collaboration within a real-life supply chain. To help structure this research the following research question was drafted: “Could vertical collaboration in the supply chain of Dreft ADW lead to better service, cost and cash results?” In order to develop an answer to this question, first a literature study was conducted to better define the concept of vertical collaboration. Then, based on a data-analysis on the current state of the supply chain, the problem areas were disclosed for which interventions were devised on the basis of the concept of vertical collaboration. Subsequently, an Agent-Based Model (ABM) of the supply chain of Dreft ADW was designed, to simulate the effects of these interventions so as to provide the data on the effects of vertical collaboration in the supply chain of Dreft ADW. With the aid of the model we were able to both answer the research question as well as to provide the problem owner (Procter & Gamble) an approach to best optimize their supply chain by using the concept of vertical collaboration. The interventions that were used to embody the effect of vertical collaboration and subsequently tested in the ABM were: - Production batch size alignment to retailer orders. - Alignment of order information sharing process between retailer and manufacturer during promotions or continuous interaction. - Use of real-time up-to-date information throughout the supply chain in ordering and replenishment. - Use of POS data in the ordering and replenishment process. The results of the model show that vertical collaboration in the supply chain of Dreft ADW could indeed lead to better service cost and cash results. By implementing the interventions in four sequent steps, service levels can be increased without increasing inventory levels. Next to that, cost savings of up to 2.4% of the gross value of the sold products can be achieved.Transport and LogisticsEngineering Systems and ServicesTechnology, Policy and Managemen