1. Eran Hanany IDF general headquarters OR (1991-2001) TAU Industrial Engineering dept. (2004-) Visited Northwestern U. (2 yrs), UBC (1 yrs) Main research areas: – Game and Decision Theory, Operations Research 1

2. Research methodology: Qualitative stage: – players (including policy maker/researcher), decision questions, processes and technology Quantitative, game theoretic modeling stage: – feasible actions (including data collection), uncertainty, information (public/private), outcomes, objectives – game analysis (analytic/numeric), including solution methods/algorithms 2

3. Current research projects: Basic research – game theoretic foundations: – axiomatic decision theory under uncertainty – game theoretic solution concepts IE and Operations Management applications: – coordination and contracting of supply chain, manufacturing, services 3

4. Design and Operations of Supply Chains with Transshipments Eran Hanany, Michal Tzur Industrial Engineering Department Tel Aviv University, Israel

5. Decision Questions Preferred supply chain networks (linked partners) Optimal operational policies (production, inventory, transportation) Required contracts (incentives, operational and payment commitments) Required supporting information systems 5

6. Network Configuration (Centralized) Incentive Mechanism (Decentralized) 6 Find Optimal System Design Find Optimal Operational Decisions

7. Transshipments Movement of stock among locations in the same echelon of the supply chain Help reduce inventories and shortages Improve the flexibility of the system Often used in practice, using information systems 7

8. Processes Several retailers facing random demand for the same item at distinct markets Asymmetric demand, cost structure and information Decisions: Quantity ordered from the supplier(s) by each retailer before demand realization Quantity transshipped from a certain retailer to each other retailer after demand realization Goals: Find the best policy for all retailers together (centralized policy) Find a coordinating mechanism for a decentralized system 8

9. When the system is decentralized, each retailer is operating to maximize their own expected profit, given private information Incentive problems exist, so that the system may not be coordinated The challenge: design an incentive mechanism such that when the retailers maximize their expected profits, the centralized system solution is achieved 9 Incentive Mechanism Design Problem in a Decentralized System

10. Payment to the fund may not always equal payment from the fund. But net expected payments from/to the fund are zero. Transshipment Fund Mechanism Fund Retailer i Retailer j 10

11. Each transshipment link requires: Investment that enables information sharing Establishment of financial and administrative arrangements (contracts) The number of transshipment links may be limited. 11 Network Configuration Design

12. Potential Implementation Increase the organization’s competitive advantage through a better supply chain: – Restructuring the supply chain to better accommodate incentives in a decentralized system – Reduce supply chain members’ conflicts – Increase the supply chain’s profits Decision Support System that will: – determine preferred SC configuration – determine incentive mechanisms and contracts – Recommend operational decisions Applicable to medium to large supply chains, such as those in the retail industry 12