ABSTRACT
A supply chain (SC) consists of a number of distinct entities that are responsible for converting raw materials into £nished product and making them available to the £nal customers to satisfy their demand in the least possible time with the lowest possible cost. Managing the ¡ows of materials, money, and information in the SC network implies the presence of many decision makers within the SC where each one operates a part of it. These decision makers could be either distinct £rms or managers of different departments within a £rm. When all the members of a SC are owned by a single individual, it is termed a centralized supply chain (CSC). On the other hand, when there are different owners for different entities, it is termed a decentralized supply chain (DSC). In today’s business world, most of the supply chains encountered are decentralized in nature. Individual members of a DSC have con¡icting objectives and when an individual member optimizes locally, it leads to an inef£cient and high-cost solution for the entire SC. Because each player acts out of self-interest, we usually see inef£ciencies in the systemthat is, the results look different than if the system was managed optimally by a single decision maker who could decide on behalf of these players and enforce the type of behavior dictated by this globally (or centrally) optimal solution. Therefore, the major concern with supply chain management (SCM) is how to align the individual decisions with the entire SC objectives to arrive at a system optimal solution and reduce the SC inef£ciency. Potential solutions to eliminate these inef£ciencies are vertical integration, coordination through contracts, and collaboration.
