Supply Chain Coordination Mechanism Design: Consensus Planning Protocol Meets Vickrey-Clarke-Groves Mechanism

TL;DR

This paper develops a theoretical framework combining VCG mechanisms with the Consensus Planning Protocol to enable truthful, efficient collaboration between retailers and vendors, enhancing supply chain coordination.

Contribution

It introduces a novel integration of VCG and CPP mechanisms, preserving incentive compatibility and efficiency in complex supply chain environments.

Findings

Framework preserves dominant-strategy incentive compatibility.

Integration improves collaboration efficiency.

Activity fee design enhances retailer revenue.

Abstract

This paper introduces the theoretical framework for combining Vickrey-Clarke-Groves (VCG) mechanisms with the Consensus Planning Protocol (CPP) to enable truthful and efficient collaboration between a retailer and vendors to lower joint Cost to Serve. We demonstrate how this integration preserves both dominant-strategy incentive compatibility and efficiency in high-dimensional environments. We further introduce an activity fee design to improve its revenue property for the retailer while maintaining the mechanism's desirable properties. This CPP-VCG framework serves as the theoretical foundation for designing collaborative mechanisms to coordinates distributed, agent-based optimization between retailers and suppliers.