Modelling and analysis of a cooperative production network

Abstract

In this study, we examine the cooperative production business model for a group of producers serving their own customers and also have access to external customers who can make an agreement to buy products at a lower price if a desired service level can be guaranteed. When the producers cannot meet the desired service level requirement of the external customers at the offered price on their own, they participate in a cooperative network. The network consolidates the external customers for its members and routes an arriving external customer to one of the participants. We determine the optimal production and rationing policies for each participating manufacturer as well as the optimal routing policy for the network. We also propose an accurate approximate method to analyse a network with a high number of homogeneous producers using a single queue approximation method. We show that, based on the parameters of the producers and the external market, the network can provide the desired service level for the external customers at the offered price and makes all the members increase their profit by better utilising their capacity and serving more external customers.