Centralized versus decentralized production planning

Abstract

In the course of globalization, many enterprises change their strategies and are coupled in partnerships with suppliers, subcontractors and customers. This coupling forms supply chains comprising several geographically distributed production facilities. Production planning in a supply chain is a complicated and difficult task, as it has to be optimal both for the local manufacturing units and for the whole supply chain network. In this paper two analytical models are used to solve the production planning problem in supply chain involving several enterprises. Generally in practice, for competitive and/or practical reasons, frequently each enterprise prefers to optimize its production plan with little care about the other members of the supply chain. This case is presented through a simple model of decentralized optimization. The aim of this study is to analyze and compare the two types of optimization: centralized and decentralized. The initial question is: what are the profit and the optimal policy of global (centralized) optimization in contrast to local (decentralized)? We characterize this gain by comparing the optimal profits obtained in both cases.