Partner selection accounting for product characteristics in horizontal collaboration

Abstract

Horizontal collaboration is a promising avenue to improve the efficiency of logistical operations, reducing costs and improving customer service. However, the success of achieving collaborative benefits strongly depends on the degree of fit between the collaborating partners. We analyze the impact of the partners’ product characteristics on the benefits of the collaboration. Depending on the type of product they distribute, companies might have different requirements and expectations on supply chain efficiency and responsiveness. To assess the benefits of collaboration, we use a location-inventory model that accounts for the partners’ individual interests, as well as the costs revealing the efficiency-responsiveness spectrum (i.e. opening of distribution centers, transportation, cycle inventory, as well as safety stocks and stock-outs). The model offers a set of Pareto-optimal solutions that support the decision and negotiation process. Finally, through numerical experiments for companies with functional and innovative products, we reveal valuable managerial insights on the effect of dissimilarities in demand volumes for products with similar or different levels of innovativeness and we support the partner selection decision in the context of horizontal collaboration.