Fair gain allocation in eco-efficient vendor-managed inventory cooperation

Abstract

Transportation is not always organised efficiently, which causes unnecessary costs and CO2 emissions. Vendor-managed inventory (VMI) has been suggested as a form of cooperation that can reduce economic and environmental impacts of transportation and consequently improve eco-efficiency of the supply chain. Establishing viable forms of VMI cooperation requires a fair distribution of the cooperation s economic benefits. Cooperative game theory (CGT) research is used to fairly allocate both benefits and costs. However, the environmental contribution of partners has often been ignored in the benefit allocation. In this study, the Shapley value (a commonly used CGT method) is used to share the monetary gains in a way that reflects the partners contributions to cost and emissions savings. The method is applied to evaluate the allocation of economic and environmental benefits of vendor-managed inventory between cooperating supermarket chains in the Netherlands. The findings show that there is a set of eco-efficient solutions resulting in lower costs and CO2 emissions compared to the current situation. For each of the eco-efficient solutions, the relative importance of saving costs and of saving emissions was quantified, and based on the importance weights, a cost allocation was found. For all partners that contribute to saving both cost and CO2 emissions, this approach results in cost savings, and therefore, the approach can be considered fair. Also, this approach helps to stimulate long-term eco-efficient forms of cooperation.