students 2010 thursday.pdfKedar PalsuleThu Apr 29 2010CarrierAlliancesLinerShipping-2.pdfPrabhakar NTue Apr 27 2010final [email protected] Apr 29 2010competition_remanufacture_revisions.pdfGustavo SantaellaWed Apr 28 2...resentation_Final Version handout6.pdfISyE 6230 Thursday April 29, 2010 Presenters: • Kedar Palsule: “Network design and allocation mechanisms for carrier alliances in liner shipping” • N.Prabhakar: “A Principal-Agent Model for Product Specification and Production” • Korin Reid: “Competition in Remanufacturing” • Gus Santaella: “Revenue Sharing with Consignment” Pg 14/29/20101Network Design and Allocation Mechanisms forCarrier Alliances in Liner ShippingRicha Agarwal,  Ozlem ErgunPresented byKedar PalsuleSchool of Industrial and Systems EngineeringGeorgia Institute of Technology, Atlanta, GA 30332-0205, USAIntroduction` This paper studies transportation networks that operate as an alliance among different carriers in liner shipping` Similar problems in air alliances`Problems tackled in paper:2`Problems tackled in paper:` Tactical: design of large scale networks` Operational: capacity allocation among carriersIntroduction` What is liner shipping?` Form of sea cargo transportation that involves carrying containerized cargo on regularly scheduled service routes` System-wide Collaboration helps:` Reduce costs3` Decrease lead times` Increase asset utilization` Improve overall service levelsLiner shipping issues` Involve high fixed costs and administrative overheads as liners promise to depart on a predetermined schedule regardless of whether the ship is full or not` Frequency required on a service route (weekly etc.) determines the # of ships for a given service route4Terms` Fleet, trans-shipment ports, profit maximizing cargo, carriers, shippers` Alliances: Carriers pool their fleets and operate them together to share capacity on the ships` Carriers decide on a set of service routes5` Assign their ships for operating these routes` Allocate each ships capacity among alliance members Why collaborate?61. To reduce and share capital costs2. To counter the “perishability” of ship capacity i.e. can’t use balance capacity once ship leaves the port3. To increase speed of service, reduce transit times, increase frequency of service4. Help explore new markets and increase global reachPg 24/29/20102Challenges among Alliances` Carriers work in collaboration with each other however each carrier’s individual goalis to maximize his profit/benefit` For sustainable alliances mechanisms must be provided to manage interactions among alliance members and shareb f d f ll h ll ll 7benefits and costs of alliance in a way that all alliance members are motivated to collaborateTrend of consolidation8Basic conceptsThe central problem in cooperative game theory is how to allocate Set N{} is referred to as the Grand CoalitionA Cooperative game is defined by a set N = {1,2,…n} of players and a characteristic function opt() that can be interpreted as the total gain the members can achieve by cooperating9The allocation or payoff vector x = {x^1, x^2, ….x^n}ЄR where x^krefers to payoff made to player kThe central problem in cooperative game theory is how to allocate the total gain opt(N) among the individual players kЄN in a fair wayConcept of CoreAllocation of benefits lies in the core if:Summation of payoffs of all playersTheir maximum attainable payoff Equivalent to concept of Nash Equilibrium in Non-co-operative game theory=&10How to allocate gains equally among all carriers?of all playersNo subset of players can collude to get better payoffsUse allocation vector “x” !So, again, what good does it do if the solution is in the core? The allocation of payoffs is fair to all carriers in the alliance!!Mechanism designSet of players (carriers)Set of Outcomes1 ‘’111 outcome ‘o’from this outcome setAll carriers collaboratively selectV^1V^2V^3V^kAll players have their own outcome preference v^kMechanism design` The goal is to design an algorithm that chooses an outcome and an n-tuple of side-payments(s^k) for all players such that:` Total payoff opt(N) is fairly sub-divided among all k players, 12each getting his share x^k which consists of the player’s chosen valuation (outcome) v^k with his side-payment s^k to help him align his decision with the rest of the playersPg 34/29/20103Variables and terminology used:` # carriers = k` # ships with carrier k = N^k` # units per ship = T` Demand set of carrier k = Θ^k `Origin port = o; destination port = d13`Origin port o; destination port d` Demand from o to d for carrier k = (o,d,k)` Revenue obtained by satisfying one unit of demand = R` Service routes: C = {C^1, C^2, …C^k}` Carrier’s valuation = v^k => v(C,Θ)Solution strategy` Goal of individual carrier is to design a service network that maximizes its profits` Goal of collaboration is to maximize overall revenue for all carriers involved` By replacing individual carrier’s fleet by N & individual demand b θ(b )14sets by θ(bar)Solution strategyCentralized body operates combined fleetCentrally decide collaborative optimal service routesCentrally decide which ships to operate whereFully centralized system: Unreasonable !!Partially de-centralized system: Reasonable15Makes overall cargo accept-rejectMakes routing decisionsGathers total profitAllocates profit fairly amongst all membersoperate whereCarriers operate their own shipsCarriers incur their own costsCarriers accept reject cargo for selfDecide routes themselvesDetermine revenue earnedChallenges in partial decentralized system` To design a regulating mechanism among carriers for capacity exchangeon each others ships` To provide incentives to align individual cargo accept-reject & routing decisions with the collaborative optimal solution16`HOW?Capacity exchange problem` Can we use a proportional space allocation algorithmthat assigns each carrier a capacity on a network edge in proportion to the capacity that it provides on that edge? ` No. It does not guarantee max possible profit opt{N}` Ex: 2 carriers A&B share capacity on a route from port P1 to P2; each have 1 ship each with capacity of 1000TEU; PSAA says 17each have 1 ship each with capacity of 1000TEU; PSAA says allocate equally i.e. 500TEU each per ship but A has demand of 700TEU and B has demand 300TEU => wont work for A !! Total revenue of the alliance also decreases