The aftermath of implementing collaboration in a network of sawmills: A retrospective analysis on logistics costs

Abstract

While usually collaborative logistics assures all partners are better off in coalition, a partner may in turn be composed by different sub-units. What is the effect of implementing collaboration for each of these sub-units? We study this problem motivated by a real-world case arising in a network of sawmills in Sweden. These sawmills have a common purchase and logistic organisation. The purchasing cost of forest areas is divided evenly among the mills even though the real purchasing costs differ between sawmills. The organisation looks for an approach to also split the logistic cost in a fair and transparent way. Moreover, the sawmills collaborate with an external company in wood bartering. Even if the organization as a whole benefits from the collaboration, the collaborative solution may leave some of the sawmills worse off, as the volumes they would use in absence of collaboration goes to the external company. The impact depends on the geographical location of mills, and the organisation wants to know how the negative impact can be balanced by a new allocation of the logistic costs. By using an optimization model implemented in a decision support system, we compute the logistics costs perceived by the organization in presence and absence of collaboration. We study a number of approaches to allocate the logistic cost and analyze how these approaches can serve as a basis for the process.