Reallocation of logistics costs in a cooperative network of sawmills

Abstract

While collaborative logistics has the potential to provide savings to organizations, the individual result of sub-units within an organization might not directly benefit from the collaboration. This cause problems as the sub-units may be their own result or profit centers. We face this problem in the context of an organized network of sawmills. The organization benefits from timbering exchange and joint transports with an external company. The collaboration with this external company, however, implies an increase in the direct cost of supplying some of the sawmills. This occurs because some of the flows which would be used to supply these sawmills in absence of the collaboration, are assigned to the external company in the collaborative solution. In order to make the collaboration profitable for all sawmills, the organization must reallocate the cost among the different members in the network. We address this problem by using concepts of cooperative game theory. We apply these concepts in a case involving a network of 12 Scandinavian sawmills which together cooperate with an external procurement company. The collaboration in this case results in 3.3% savings for the network. A slightly modified version of the equal profit method allows to reallocate the cost of the collaborative solution in such a way that the cost of all sawmills is reduced with respect to their direct cost in absence of collaboration, while also assures the stability of the cooperation.