International Journal of Production Research.

Vol. 43. No. 20. 15 October 2005, 4101 4218

Improving supply-chain collaboration

by linking intelligent agents to CPFR

M. CARIDlt. R. CIGOLINI*f and D. DE MARCO

tDcpiirinicnl of Managfment. Economics and Industrial Eriginecring,

Poiitecnico di Milaiio. Piazza Leonardo da Vinci. 32. 20133. Milan. Italy
jFormer sludenl ol" Poiitecnico di Milano

{Revision received May 2005)

The standpoint of this research lies in the study of the Colktborative Planning
Forecasting and Replenishment (CPFR) process for trading partners (belonging
to the same suppiv chain) who are willing to collaborate in exchanging sales
and order forecasts. The hurdles that arose in implementing CPFR in field appli-
cations indicate the need for providing collaboration process with an intelligent
tool lo optimize negotiation. For this purpose, a literature review and classifi-
cation have been carried out for anionomous agents used to managing supply-
chain processes. On the basis of the classification, two multi-agenl models are
proposed, according to different degrees of agents' capabilities. To evaluate the
strengths coming from an intelligent system etiibedded within the CPFR process,
several experiments in dillerenl condilions have been conducted using a simula-
tion tool. The analysis of results indicates that the agents-driven negotiation
process (by comparison with CPFR without intelligent agents) benefits in terms
of costs, inventory level, stock-out level and sales.

Keywords: Collaborative planning forecasting and replenishment; Multi-agenl

systems

I. Introduction

CPFR denotes Collaborative Planning Forecasting and Replenishment (CPFR

Workgroup 2002a.b). This abhreviution is used to identify a nine-step approach
which provides volunteer standards, protocols, guidelines, etc. required to exchange
sales and order forecasts (on a web-based platform) between trading partners (con-
ventionally identified as the buyer and seller) belonging to the same supply chain.
Under CPFR. both buyer and seller collaborate by correcting, adjusting, proposing
prices and quantities to reach an agreement on a unique forecast, so that the buyer's
purchases forecast and the seller's sales forecast coincide.
In more detail, the nine-step approach suggested by CPFR can be summarized
as follows:
1. front-end agreement development, where the buyer (e.g. a wholesaler)
and seller (e.g. a manufacturer) co-develop a general business arrangement

*Corresponding author. Email: roberto.cigolinif.* polimi.it

tnu-iihiiKiiiiil Jiiiiriuil of PnitUiiiiim Rtst-unb

ISSN 1)020 754.1 prim iSSN 1366 5K8X online ( 2005 Taylor & t-rancis
lUipi'Www.landr.co.uk journals
DOi: lO.IOWO 002(17540500142134
4192 M. Caridiei al.

that includes the overall understanding and objective of the collaboration,

confidentiality agreements, etc.;
2. a joint business plan creation, where the buyer and seller exchange infor-
mation about their corporate strategies and business plans:
3. sales-forecast creation, where sales forecasts are generated after collecting
point-of-sales data and after an analysis of the potential effects of the current
joint business plan and of other causal factors on future retail sales;
4. exceptions (for sales forecast) identification, where the buyer's sales forecasts
are compared with the sales forecasts deemed by the seller;
5. exception resolution, where sales-forecast exceptions are handled by querying
shared data, email, telephone conversations, meetings, etc.;
6. order-forecast creation, where the seller both allocates production capacity
against demand (thus minimizing safety stocks) and gives buyers increased
confidence that orders will be delivered:
7. exceptions (tor order forecast) identification, where the buyer's order fore-
casts are compared with the seller's ability to supply;
8. exception resolution, similar to step 5, but now referred to order forecast
instead of sales forecast;
9. order generation.
In this way, by allowing the buyer to be acquainted with the seller's availability
and allowing the seller to have access to information about consumer demand, each
time there is an exception (i.e. something unexpected), sales and order forecasts are
accordingly updated, and trading partners can be protected against the bullwhip
effect caused by a fluctuation of final customers demand which is amplified as
going upstream in the supply chain (Johnson 1999). For these reasons, CPFR sup-
porters claim benefits in terms of inventory reduction, lost sales decrease, service-
level improvement, etc. (White 2000, Aviv 2001. Bonde and Hvolby 2004) and they
outline, in the long term, a competition pattern between supply chains as a whole
rather than between trading partners belonging to the same supply chain (Amaral
and Turner 2001).
However, ihe CPPR process can be improved almost twofold. On the one hand,
during the initial step, trading partners establish the guidelines and the rules for the
collaborative relationship by developing a front-end agreement, which inherently
requires a negotiation often ending in a signature on a contract. On the other
hand, whenever an exception has to be solved, and the new forecast has to be
determined, a negotiation process is restarted, usually ending in an agreement on
the updated forecast value, in either case, a negotiation takes place which can be
optimized by having to resort to an (artificial) intelligence, able to solve exceptions
each time in a dynamic manner, by monitoring all variables values and by proposing
convenient solutions (as under the 'Advanced" model that will be proposed here;
see sections 4 and 4.3). whereas under the CPFR approach—as originally con-
ceived—solutions are calculated according to pre-defmed rules. The same intelli-
gence can operate also at the front-end agreement stage by re-writing
collaboration rules (as under the 'Learning" model that will be proposed here; see
sections 4 and 4.4), whereas, under the CPFR approach—as originally conceived—
collaboration rules are not updated. The possibility of rewriting rules and decisions
according to the actual value of system parameters (e.g. demand and production
 Improving siipply-clmiu eollaborution 4193

system capacity) allows the system performance to be improved (optimized) by

comparison with the traditional CPFR approach.
The need to optimize the negotiation process between two (or more) trading
partners within the CPFR framework suggests an approach based on autonomous
agents, i.e. entities with problem-solving capabilities, rationahty. autonomy, social
ability, reactivity and pro-activity (Muller et al. 1997). Each agent has incomplete
information or abilities to solve the problems presented: the viewpoint is limited,
there is no global system control, data are decentralized, and computation is asyn-
chronous (Jennings et al. 1998). To model and improve the negotiation process
between trading partners, each agent has to be provided with features characteristic
of a human emotional state, i.e. beliefs {corresponding to information maybe
incomplete and/or incorrect—about the environment), desires (corresponding to
the goals), intentions (representing desires the agent has committed to achieve),
etc. (Wortmann and Szirbik 2001. Kumara et al. 2003. Prabhu cl al. 2003).
Consequently, the objective of this paper is twofold: first, it provides a survey and
a classification of the literature regarding applications of autonomous agents to
manage supply-chain processes: second, it assesses the benefits brought about by
autonomous agents connected to the CPFR process. For this rea.son. two multi-
agent models have been proposed, according to different agent abilities, and several
experiments in different conditions have been conducted using a simulation tool.
The paper is arranged as follows: sections 2 and 3 present the literature review
and the classification regarding both CPFR and autonomous agents; section 4 out-
lines and describes the proposed models: section 5 deals with the experimental model
developed to improve CPFR and details the e.\pcrimental design. Section 6 outlines
the experimental results, and section 7 makes some concluding remarks and suggests
future research directions.

2. Background

The first attempt to model the supply chain through intelligent agents was
made at the Toronto University by Fox and other co-workers (Fox ct al. 1993).
They addressed the problem of supply-chain integration through a network of intel-
ligent agents, as if it were a constraint satisfaction and optimization process. Later.
Beck and Fox (1994) proposed a constraint-relaxation algorithm and showed thai a
so-called mediated solution can be significantly better than a negotiated solution
in the context of supply-chain management. Finally, Fox et al. (2000) tried to opti-
mize the communication pattern among agents by providing a full conversational
ontology, containing plans, rules, actual conversations, etc.
To simulate a risk benefit analysis of reengineering alternatives. Swaminathan
a al. (I99S) built a mulli-agent based model which has the ability to simultaneously
observe the global and local performance of the supply chain. The purpose of the
model is to integrate the tactical and operational level, without investigating in
detail the coordination mechanisms. Shehory and Kraus"s (1998) study, motivated
by the MetaMorph II project, proposes a hybrid agent-based architecture and pre-
sents a prototype implementation. Gjerdrum et al. (2001) studied the supply-chain
integration process at the operational (i.e. tactical) level by suggesting a model in
which each production site was scheduled by a numerical optimization program.
4194 M. Citriili cl al.

while the tactical decision-making and control poiicies were determined hy an agent
system.
A different research path has been followed by other authors who focused on the
importance of information sharing, rather than on the operational supply-chain
integration. Strader ei a!. (1998) studied order fulfilment in divergent assembly
supply chains and provided a basis for modelling complex issues such as imbalanced
bargaining powers among supply-chain partners. Hinkkancn cl <r//.'s (1999) research
proposes a model (useful in dynamic environments) in which agents represent not
only the information and the product flow along the supply chain but also the
fmancial flow.
Thi.s research line has been deepened by Baumgaertel cl al. (1998). who applied
their model to the Daimler Chrysler Corporation, and they demonstrated that a
quantitative evaluation of the impact of parameters and strategies in the supply
network design can show the fmancial advantage of introducing the supply net-
work management. Later on. Chandra cl al. (200!) described a general framework
of e-management for scalable Internet-based cooperative supply chains. Finally.
Verdicchio and Colombetti (2002). based on the analogy between a company in a
business network and an agent in a multi-agent system, introduced the concept of
commitment (as an inter-agent state), which can be considered as some sort of social
contract in that it forces each agent (i.e. each company) to safeguard the interests of
all the other agents (i.e. all the business network nodes).
Some other research studies are motivated by the need to keep the bullwhip effect
under control. Yung and Yang (1999) integrated multi-agents, artificial intelligence
and Internet to optimize products and information flow along the supply chain.
Kimbrough ci al. (2001) tested their agent-based approach on the Beer Game
case-study under different stochastic conditions: retailer, wholesaler, distributor
and manufacturer try to calculate ihe best order policy by using genetic algorithms
which confer to agents' learning capabilities.
An additional research path is focused on the negotiation process between
agents. Shcn cl al. (1999) proposed a general architecture for Interncl-hased collab-
orative agent systems at the operational level. Later. Walsh and Wellman (2000)
recognized resource contention as a difficulty in supply-chain formation, for which
they suggested market-based approaches: experiments revealed that the protocol
reliably converges to solutions. Chen cl al. (2001) presented two novelties: the
first is a framework without pre-sct relationships between agents, so that when-
ever an order arrives, a virtual supply chain may emerge through negotiation
processes; the second is the use of self-interest agents in both pairwise and third
party negotiation.
Finally, the studies of Fu ct al. (2000) and Qinghe a al. (200!) can be considered
the starting point for the models described here. Fu cl at. (2000) first stated that only
a few efforts have heen made to map supply-chain processes into a multi-agent
system; then they addressed a preliminary approach towards the process-oriented
collaborative inventory management in supply chains by taking advantage of multi-
agents for modelling and simulation; finally, they concluded that there is a need
lor a theoretical IVamcwork for the collaborative inventory management, involving
one stage of demand forecasting, one of inventory planning and one of replenish-
ment. Qinghe cl al. (2001) proposed a bidding decision and bid calculation
model for planning an agent-modelled supply chain. They supported the adoption
 Iniprovinfi supply-chain collaboraiion 4195

of a mixed fuzzy and random parameter set and of genetic algorithms to solve the
resulting NP-hard problem.

3. Review and classification

Table I classifies the literature contributions in the field of autonomous agent appli-
cations to supply-chain managemenl. Through the vertical dimensions, the char-
acteristics of the multi-agent system arc described, while the rows rcporl the main
CPFR features as represented by authors who studied agent systems. For the sake
of clarity, the taxonomy will be illustrated according to the row-based dimensions.
while section 3.1 Is devoted to the vertical dimensions together with their options
(i.e. alternatives for each dimension).

3.1 Vertical dimensions

The first dimension refers to the decision-making, in that ii idcnlifies the time period
to which agents usually apply their decisions. At the strategic level, the decisions
define the supply-chain network, e.g. selection of suppliers, transportation routes,
manufacturing facilities. At the tactical level, agents plan and schedule the supply
chain lo meet actual demand, while at [he operational level they execute plans.
The operation on the supply-chain dimension refers to the effect the model
should have on the supply chain. It may consist o\'\
1. formation, when agcnls are used, for example, lo determine sellers for mate-
rials supply or customers for product buying:
2. integration, when agents coordinate the supply chain in terms of mere auto-
mation of transactional processes, such as a dynamic real-time EDI system;
3. collaboration, when agents—while collaborating—simulate companies that
exchange dala and information to improve processes;
4. synchronization, when agents evenly monitor over time the chain, the activ-
ities in the enterprises, the products, money and information flows so as
to alert partners in the chain when something unexpeeted oecurs.
The dimension related to the lype of agents refers to their social abilities. For this
purpose, agents may be:
1. communicative, i.e. they aehieve data integration through the same language
for all the involved partners;
2. coordinated, i.e. they achieve process integration of the involved partners and
handle different semantics;
3. cooperative, i.e. they achieve enterprise model integration by over-ruling the
usual behaviour;
4. collaborative, i.e. they are able to autonomously detect feasible common
goals and plan togelhcr iheir agendas to maximize shared profit.
Referring to the agents intelligence, they may be reactive when they are nol
provided with initiative and ihe level of intelligence is low. active when they find
new courses of action when facing environmental changes, or even pro-active when
4196 M. Caridi et ill.

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4198 M. Caridi eiixl

they learn from the history, analyse the environment and rewrite the rules according
to which they operate.
Agents can be orgatiized either according to a hierarehy in which they can
only eommunieate vertically, according to a flat structure without eontrol of one
agent by another one, according to a subsumption where some agents are com-
ponents of other agents, or even according to a modular structure where each
module can be perceived as a virtually stand-alone multi-agent system (Caridi and
Cavalieri 2004).
Finally, the dimension related to the degree of maturity is useful to understand
if the researches are consolidated or they merely represent a formalized idea. For this
purpose, the options (according to an increasing level of formalization) refer to
the statuses of: modelled, emulated, pilot and prototyped. Both traditional final
statuses (i.e. production and product) are omitted because no work has reached
this level of maturity, which also shows that there is still much research to be
done in the field of agent-based supply-chain tnanagement.

3.2 Information s
The aim of this dimension lies in pinpointing the research studies oriented to support
the idea that information sharing could bring long-term benefits in supply-chain
management, given that CPFR assumes it is true.
First of all. no research involves the strategic level: in Baumgaertel el al. (1998).
information involves forecasts and forecast policies; in Chandra et al. (2001) fore-
casts, forecast and inventory policies and information about the scheduling process:
in Hinkkanen et ai (1999) and Verdicchio and Colombetti (2002) product, informa-
tion and financial flows, and marketing policies: in Strader ei ai (1998) inventory
levels, capacity, production plans, etc.
In terms of operations on a supply chain, no study has found anything more than
a simple integration of agents' intelligence and the majority of research refers to
coordinated agents. All studies use multi-task planning as a coordination mecha-
nism, except for Hinkkanen et al. (1999), which also uses auctions. In Baumgaertel
et ai (1998) and Strader c? al. (1998). agents are merely reactive because they operate
according to fixed rules; Chandra el ai (2001) propose a reactive and scalable object-
based model for information sharing in the e-management of supply chain. By
introducing negotiation. Hinkkanen ei ai (1999) present more capabilities, and
Verdicchio and Colombetti (2002) show more complexity by introducing the concept
of commitment.
Besides, Baumgaertel et ai (1998) adopt a modular organization, and Strader
et ai (1998). who make provision for Swarm entities (companies); Chandra et al.
(2001) propose the same organization, even if it refers to agents in a diflerent way.
On the contrary. Hinkkanen ei ai (1999) is a flat organization, since all the agents
work totally distributed. Finally, Baumgaertel et ai (1998) and Strader et ai (1998)
are emulated because they demonstrate the importance of information sharing
through some simulation experiments; the others are only modelled.
 Improving supply-chain collaboranon 4199

3.3 Bullwhip effect management

The aim of the buliwhip elTcct-related dimension is to indicate how the research
studies suggest addressing this effect, and the type of agents used, given that
CPFR manage it by collaborating on the planning and forecasting process.
Both surveyed models are placed at the tactical level because the bullwhip
effect arises from bad information transmission on order processing eitber down-
stream or upstream of the supply chain. The agents of both models are merely
coordinated but. at the same time, they are also very intelligent: Yung and Yang
(1999) develop a linear programming algorithm based on constraint satisfaction
and propagation; Kimbrough cl al. (2001) use genetic algorithms; hence, it is also
provided with learning capabilities. The organization for both models is flat,
because they analyse the processes of ordering between companies, so they do not
refer to other functions.

3.4 Supply-chain integration

The aim of this dimension is to categorize the works that have attempted to tie
together supply-ehain entities somehow through agent systems.
Four models (Fox el al. 1993. Shehory and Kraus 1998. Swaminathan cl al. 1998.
Gjcrdrum ei al. 2001) operate at the tactical and/or operational level because they
are concerned with order scheduling, forecasting, event-management, etc. Only
Fu el al. (2000) operate at the strategic and/or tactical level, since they offer an
agent system able to find good inventory policies through collaboration between
supply-chain partners. The result is an integrated supply chain for the first four
models, in which the entities are tied between them in a sequential and linear
manner so that, by looking at the supply chain, one can see the connections but
can also recognize the single enterprise. On the contrary, in Fu cl al. (2000). an early
way of interaction and collaboration ratber than a mere integration is recognized.
In a similar way. the agents of the first four models are merely coordinated,
through multi-task planning and through a hybrid architecture compound of sub-
systems and mediators in which each agent can talk directly with agents in other
subsystems; in Fu cl al. (2000), the agents are cooperative because they decide all
together and negotiate the best inventory policy. In addition, all the models have
a different kind of intelligence, i.e. a constraint-relaxation propagation (Fox cl al.
1993). a linear programming algorithm (Ku ci al. 2000). a numerical optimization
technique (Gjerdrum el al. 2001). and heuristic procedures (Swaminathan ct al.
1998).
Besides. Fox cl al. (1993). Swaminathan ei al. (1998) and Gjerdrum cl al. (2001)
adopt a flat organization, whereas Fu ci al. (2000) suggest a modular organization
where agents exist devoted to plan: supply chain activities, source activities, make
activities and deliver activities. The particular organization of Shehory and Kraus
(1998) can be considered to be modular.
Fox ['/ (//."s (1993) study and Swaminatban cl al.'s (1998) study are only mod-
elled: Fox ('/ (//. (1993) because it is the pioneering work about agents applications on
supply chains; Swaminathan cl al. (1998) because it is aimed at offering a tool to be
4200 M. Caridi el al.

used to test differenl forms of supply-chain re-engineering. Fu et ai's (2000)

study and Gjerdrum et al.\ (2001) study are emulated, since they describe
some experiments and the results achieved through simulation. Shehory and
Kraus (1998) provide the only case of a prototyped model among the surveyed
works.

3.5 Exception handlinfi

The aim of this dimension is to verify the types of exceptions treated in literature
and the intelligence used to solve them, given that CPFR requires a very high degree
of intelligence.
The two models belonging to this group differ in that Beck and Fox (1994)
try to find an intelligent mechanism to face these events, while Fox et al. (2000),
having carried out a continuation of the previous study., improve the model by trying
to automate the communication between agents. For this reason, some features are
similar: both operate at the tactical level, the agents are active, because they use
analytical and heuristics for solving problems arising from undesired events;
however. Fox et ai (2000) present a higher degree of intelligence, since it tries
to automate communication between agents and define conversation plans and
rules; both models realize an integrated supply chain through the constraint relaxa-
tion propagation, and the organization is flat. Finally. Beck and Fox's (1994)
study is only modelled while Fox ('/ ((/.*s (2000) study is emulated, since it also
reports some experiments earried out in an enterprise operating in the electronic
industry.

3.6 Negotiation
The aim here is to establish whether agent-based supply chain applications employ
negotiation only to solve resources contention or for other purposes also. e.g. under
CPFR to set strategic objectives for trading partners.
Models belonging to this group try to standardize Ihe negotiation process among
agents operating in virtual enterprises on the Web, where supply chains swing fVom
time to time by negotiating to find suppliers and customers. For this reason, all the
models deal with supply-chain formation; moreover, Shen et al. (1999) and Qinghe
et ai (2001) are also in the box of integration because they suggest negotiation
mechanisms to automate and optimize the ordering process once supply chains
have been defined. By implementing capabilities of negotiation, the agents are com-
pelled to interact with the others, i.e. they are cooperative. In Shen et ai (1999) and
Qinghe et ai (2001). agents may be merely coordinated, when they are adopted for
supply-chain integration. Since agents have the ability to negotiate, they have a
certain degree of intelligence: for this reason, the agents of all the models are classi-
fied as active, except for Qinghe et ai (2001). in which agents are pro-active because
they are able to find better solutions by using a complex algorithm to calculate the
bid and genetic algorithms to solve it. Finally, all the research studies use flat agents'
organizations, and all are simply modelled.
 Improving .supply'cluiin collahorarion 4201

3.7 StimmavY
By analysing the grid (reported in table 1) as a whole and by taking a broad overview
of the related dimensions, bolli vertically and horizontally, four main schools
of thought can be identified among the applications of intelligent agents to the
supply-chain management problem.
First, referring to the process automation along the supply chain, agents basically
act as if they were a dynamic real-time EDI system. For this reason, agents arc
generally coordinated and reactive, and the result is a supply chain integrated at
the tactical/operational level (Strader el ai 199H, Hinkkanen cl al. 1999. Chandra
Cl al 2001).
Second, referring to the supply-chain integration, agents are more intelligent
than in the previous case, since they can negotiate new solutions and thus are also
more socially able to interact, and they usually operate at the tactical level (Fox cl al.
1993. 2(}{)0, Beck and Fox 1994. Shehory and Kraus 1998. Yung and Yang 1999.
Gjcrdrum ei al. 2001, Verdicchio and Colombetti 2002).
Third, referring to the simulation of the supply-chain behaviour. muUi-agont
systems represent the best way to carry out what-if analyses, e.g. to discover new
inventory or forecast policies or to find a way for supply-chain re-engineering. In this
case, systems are usually only modelled: the agents have different levels of intel-
ligence and social abilities, they usually operate at the tactical/operational level,
and they are merely coordinated and at their most active (Baumgaertel ci al. I99S,
Swaminathan el al. 1998, Fu cl al. 2000. Kimbrough el al. 2001).
Fourth, referring to the supply-chain tbrmation. agents arc usually cooperative
and active because they develop complex negotiation mechanisms, the works are
usually modelled, and they operate at the strategic level (Chen et ai 1999, Shen el al.
1999, Walsh and Wellman 2000. Qinghe ei ai 2001).
To summarize, the majority of agent-based CPFR models found in the literature
operate at the tactical decision-making level, making it possible to achieve integra-
tion and formation among the supply-chain partners, utilize active agents, utilize
cooperative and above all coordinated agents, and utilize a Hat organization that
rcilects the supply-chain structure.
Now. referring to the environment outlined above, the agent-based CPFR
models that will be presented in section 4 adopt a different approach. First of all.
they realize a horizontal process-based integration of supply-chain partners (Fu et al.
2000). The result is a synchronized supply chain, and agents have a high degree of
intelligence so as to optimize the exchange of information, the collaboration among
partners, and the negotiation among them. Socially, they arc collaborative, since
[hey use negotiation processes to solve exceptions, and they are able to rewrite the
rules according to which they operate and negotiate. The models can operate at the
strategic level of decision-making, and agents are proactive, in that they are capable
of analysing data through genetic algorithms. As a result, by considering the
taxonomy outlined in table 1. the proposed agenl-based CPFR model can be catego-
rized as follows: it operates at a strategic/tactical decision-making level; it realizes
synchronization of the supply chain; its agents are communicative, coordinated but
above all cooperative: it utilizes proactive agents; its modular organization reflects
the structure of the supply chain and of each enterprise (i.e. a hierarchy); and it is
an emulated model in terms of the matui'ity stage.
4202 M. Caridi el al.

4. Proposed models

The ageni-bascd models proposed here are built for the so-called one-to-one scenario
in which a buyer (retailer) and a seller (manufacturer) collaborate. For this scenario.
three different models are proposed, each corresponding to dirterent capabilities
and different degrees of agents' intelligence and so to different ways of solving
exceptions: ihey are the CPFR, the "Advanced" and the "Learning" models.
The tirst model is only an attempt to model CPFR process as it is originally
conceived (CPFR Workgroup 2002a,b). Modelling is realized by using intelligent
agents with reduced capabilities, i.e. merely reactive agents: an agent's knowledge
base is made up of only pre-defined rules, which prevents the model from being
able to solve exceptions in a dynamic way. Under the 'Advanced" model, agents
are able to calculate and suggest suitable solutions according to the events, the situ-
ation, the trading partners" needs and criteria values. Finally, under the "Learning'
model, agents are able to rewrite collaboration rules, by calculating new threshold
values for the criteria regarding, for example, forecast accuracy, minimum stock-in
level required, and maximum inventory level allowed.
In building the agent-based models, according to Muller cl al. (1997), two dif-
ferent levels of abstraction have been addressed: (1) the external level identifies,
for example, agent instances, multiplicity, the time they come into existence, hier-
archical relationships, responsibilities, and provided services; (2) the internal level
defines the agents internal architecture, i.e. the mental state, the beliefs, the degree
of intelligence and the capabilities. The external level of all three models is the same
and will be described in section 4.1, whereas the internal level changes according
to different agents' architectures and capabilities: sections 4.2-4.4. highlight the
internal level for each of the proposed models by displaying the corresponding
layers. Figure l(a) provides an overview of the relationships among models, levels
and layers.

4.1 External level

The external level is built on two layers, corresponding to two different decision-
making patterns. The first layer (i.e. that of strategic and tactical decisions) repre-
sents companies in their wholeness. Therefore, in the context of this study, a manu-
facturer agent and a retailer agent are present: the manufacturer agent is interfaced
with raw materials (and components) suppliers and with the retailer; the retailer
agent is interfaced with final consumers and with the manufacturer. Manufacturer
and retailer agents have the task of discovering and timely controlling exceptions by
negotiating and solving them. At the strategic and tactical level, manufacturer and
retailer agents control criteria regarding stock-in percentage, inventory level and
forecast accuracy.
In the second layer (i.e. the operational one), agents have the task of gathering
the values of some detailed parameters: in this way. every time something wrong
happens in any activity of the enterprise, these entities timely alert upper level agents
so that they can dynamically and eliiciently manage the exceptions before making
damage no more solvable. (Notice that, although these entities have been named
agents, strictly speaking, they are not agents, since their degree of intelligence is
very low. They are rather objects that just monitor the situation and notify the
 Improving supply-chain coltahonilion 4203

(a)
B.itemal level

Model
CPFR •Adv winced" Learning'
(CPFR,

i; mes^at;c^ layer Yh.S YF.S Yf-:s

'Learning'I
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Prod UL-1 ion f l o *

Figure 1. (a) Overview of the relationships among models, level and layers, (b) CPFR
tradinj: partners modelled through autonomous agents.

upper agents about what happens.) Figure l(b) shows the agents of the model, the
data flow and the controlled parameters.
To compare forecasts with the actual values of the indexes, upper-level agents
again need bottotn level agents: iit the operational level, on behalf of the manti-
facturer agenl. a production agent controls parameters regarding production, i.e.
capacity maximum rate and production lead time; e.g. when a machine breaks down
or a production order is late, these events are timely communicated to the manu-
facturer Ihe agent, which notifies Retailer ihc agent and negotiates to re-definc order
and sales forecasts. Moreover, a manufacturer inventory agent monitors parameters
regarding safety slocks, maxitnum inventory level, and replenishment lead time: if
something unexpected happens, e.g. u delay in replenishing ihe warehouse or an
excess of stock level, the two upper-level agents revise the forecasts.
Drawbacks can also arise in transports {e.g. a decrease in the number of
vehicles available or a delay during the transport activity): for this reason, the
 4204 M. Caridi Cl al.

manufacturer agent also needs u manufacturer transport agent. Likewise, the

retailer agent has at its disposal a retailer inventory agent and a retailer transport
agent.
As a result, in the external model, the data flow is both bottom-up and top-down;
in addition, in the "Learning" model, after a revision of the threshold values, the
manufacturer and retailer agent communicate the new values to the lower-level
agents.
Finally, to completely characterize the external model, two additional issues
should be addressed, i.e. the level of control among agents and the way agents
communicate. Referring to the control, the cooperation and coordination mecha-
nisms will be presented in the following, whereas referring to the communication, the
paradigms and protocols will be defmed.
In the area of eontrol, horizontal interactions between manufacturer and
retailer agent should be distinguished from vertical interactions between manufac-
turer (or retailer) agent and the monitor agents. In the case of horizontal interac-
tions, the cooperation is very low. since manufacturer and retailer agent are
benevolent self-interested agents, in that they represent their own companies and
they operate in an environment of strategic collaboration among enterprises to find a
win-win condition. On the eontrary. in the case of vertical interactions, a master vs.
slave relationship holds, since upper-level agents are masters, whereas bottom-level
agents are slaves.
Within eaeh side of the model (i.e. manufacturer and retailer side), coordination
takes plaee either among the upper-level agents and the lower-level ones or between
the two model sides. In the case of coordination among upper- and lower-level
agents, monitor agents are aware of their tasks, which are requested by the upper-
level agents. Coordination is based on social laws, used as coordination tools in
routine situations, in which in each moment it is known what the agents are
doing, what their goals are and what their plans are; this is exactly the case for
monitor agents. In the case of coordination between the two model sides, coor-
dination is based on negotiation. Facing an exception, manufacturer and retailer
agents negotiate to reach a compromise through pairwise proposals and counter-
proposals. Since agents are benevolent, if they do not succeed in finding a eompro-
mise that completely satisfies individual objectives, they are prepared to relax con-
straints (e.g. prefixed stoek-in level, maximum in\entory level) and to restart a
negotiation.
As far as communication is concerned, the shared memory (also called black-
board) paradigm has been applied. In the horizontal communieation. the blaekboard
is updated with each new proposal oi' order (or sales) forecast, as well as with the
exception notifications. In the vertical communication, monitor agents alert upper-
level agents by writing exceptions on the blaekboard. Likewise, manufacturer or
retailer agents transmit to their monitor agents the updated parameters values.
Notice that, given the reduced number of agents using the blaekboard, there is
no risk of a bottleneck.
Finally, a communication protocol has been defined for the negotiation proeess.
In particular, the protocol of Chen cl al. (2001) has been implemented: (I) calls for
proposal, used to notify the will of making a proposal: (2) proposal and eounter-
proposal; (3) reject or accept (i.e. answers to proposal); (4) terminate (i.e. a stop
signal indicating that the compromise has been reached).
 Improving supply-chain collahoralion 4205

4.2 Internal level of the CPFR model

Within the internal level o\' the CPFR model, the process starts with the retailer
agent. This agent, after having gathered data from point of sales and having gener-
ated demand forecast, develops their plans by setting the sales forecasts (to the
market) and the orders forecast (for each item and for each sub-period of the plan-
ning period) it will forward to the manufacturer. After that, the retailer agenl makes
the proposal to manufacturer agent, who determines the quantities it will send to the
retailer (sales forecasts), which should coincide with the retailer's orders, i.e. what
is requested by the retailer; moreover, the tnanufacturer establishes how many units
they will produce (order forecasts), and calculates the level of inventory for each item
at the end of each period.
At this point, an operational level agent monitors whether the following excep-
tions arise: (1) the Retailer's order forecasts and manufacturer's sales forecasts differ
beyond a prefixed threshold; (2) the actual sales/orders and sales/orders forecasts
differ beyond a prefixed threshold.
If the retailer's order forecasts and manufacturer's sales forecasts differ beyond
a prefixed threshold, a monitor agent compares both order forecasts, to identify
possible gaps. If gaps are found, the monitor agent adjusts both forecasts to make
them as close as possible. Then, the manufacturer and retailer agent adjust all
the other plans coherently with the order forecast adjusted by the monitor agent;
if this is unfeasible (i.e. the new forecast may never be consistent with any retailer
order forecast or manufacturer sales forecast), the two actors relax some constraints
about criteria and items, and restart a new forecasting process. Notice that in
this way, an iterative feedback loop from the order forecast to the sales forecast
takes place.
If an exception arises from the comparison between order forecast and actual
orders, a monitor agent alerts upper-level agents. As a consequence, the manuiac-
lurer or retailer agent adjusts the forecasts to solve the exception by identifying
the least expensive solution. Then, they inform the partner agent of the new forecast
and invite them to make a counter-proposal.
In this model, the architecture of the retailer and manufacturer agent has two
layers, respectively, for rnanaging messages coming from the other agents and
for elaborating forecasts. Agent intelligence resides at the elaborating forecasts
level: an agent function supports the generation of sales forecast and order fore-
cast, whereas another function supports forecasts updating, as a consequence of an
exception notification sent by a bottom-level agent.
As for the function supporting the forecasts generation, the retailer and manu-
facturer agent start, respectively, from demand forecast and retailer order plan, and
randomly generate sales forecasts on the basis of a uniform distribution where the
minimum equals 0 and the maximum equals the sum of all the quantities requested
ni each sub-period. (The retailer and manufacturer agent may decide on either early
or late deliveries if it is profitable.) When formulating sales forecast, the retailer
and manufacturer agent ensure that the minimutn stock-in value constraint is satis-
fied. After having generated a sales forecast, the retailer agent generates an order
forecast, whereas the manufacturer agent generates the master production schedule.
Values are randomly generated from a normal distribution, subject to the constraints
on the maximum inventory level allowed in eaeh period for each item and the
 4206 A/. Caridi ct al.

minimum inventory level (i.e. the safety slock level) required when facing demand
variance.
To update forecasts as a consequence of an exception, after the monitor agent
has modified the order forecasts, the retailer agent updates the sales forecast and
inventory plan, whereas the manufacturer agent updates the production and inven-
tory plan, in accordance with the new order forecast. The retailer generates its plans
in the respect of the constraints on shipment, stock-in level, inventory level and
capacity, while the manufacturer generates their plans in respect of the constraints
on the new sales forecast.
The monitor agent has only one function, supporting forecast control; therefore.
il has limited intelligence since its capabilities are merely reactive. To carry out this
function, the monitor agent compares the forecast and, if the gap between the two
values overcomes the threshold set for the forecast accuracy parameter, it corrects
values according to a given formula, so as to reach a compromise. However, the
neighbourhood of the final solution either to the retailer or to the manufacturer
proposal depends on the bargaining power of each of them, which in turn depends
on the priorities each links to the criteria and products.

4.3 Internal level of the 'Advanced' model

Even within the "Advanced" model, the process starts with the retailer agent, who
generates the sales and order forecast subject to the constraints on demand forecast.
The order forecast is sent to the manufacturer, who in turn generates the sales
and order forecast. If the forecast accuracy is respected and exceptions do not
arise, the forecast becomes definitive. Otherwise, the manufacturer agent commu-
nicates exceptions to the retailer, who acts as foilows: {!) relaxes the decision criteria
according to the priorities set in the priority table; (2) adjusts the order forecast for
the products and the sub-periods addressed by the exception; (3) calculates the new
sales forecast linked to the adjusted order forecast. Before communicating the new
proposal to the manufacturer, the retailer agent checks whether the last manu-
facturer sales forecast is respected: if not, the retailer agent sends the exception
message and the new proposal, the manufacturer agent repeats the same steps (1)
to {3) above, and the negotiation continues until a compromise is reached. i,e. until
the criteria threshold values (e,g. forecast accuracy) are respected.
Agents* architectures are more complex than in the CPFR model: as well as
the layer for messages management and forecast elaboration, two additional
layers are present, i.e. one for recognizing exceptions and one for solving excep-
tions. The retailer and the manufacturer agents are endowed with the following
functions: (I) a monitor function to detect exceptions; (2) a communication func-
tion to communicate exceptions to partner agents; (3) a constraints relaxation
function regarding criteria threshold values: (4) a solution-generation function to
solve exceptions.
Through the monitor function, agents compare each order forecast with the
corresponding sales forecast. If the gap overcomes the forecast accuracy percent-
age, the communicate function agents alert the partners and invite them to make
their counter-proposals by adjusting the values addressed by exceptions.
When calculating their counter-proposal, the agents relax constraints, and the
priority table (where the ranking for constraints relaxation is recorded) supports this
 Improving supplv-chain collaboration 4207

activity: the first constraint to be relaxed is that with least priority in terms of criteria
and products. For each constraint, the table indicates the maximum allowed relaxa-
tion, while a further table records the relaxed constraints. Notice that the solution
goodness is tightly linked to the extent of relaxation and to the constraint ranking.
As for the function of solutions generated, the agents are endowed with an
algorithm that minimizes a function cost (sum of transportation, stock-out, set-up,
inventory-holding, fixed and variable costs), subject to constraints regarding
maximum shipping quantity, maximum available capacity, minimum stock-in, mini-
mum and maximum inventory level. Notice that decision variables of the algorithm
are stochastic, since order forecast is a (normally distributed) random variable.
The retailer agent does not know exactly how many units of each product they
will need to purchase from the manufacturer, who in turn does not know how
many units of each product will be produced.
As suggested by Qingh*-' <'' ^'Z- (2001), the resulting stochastic problem has been
formulated and solved by means of the chance constrained fuzzy programming
method, which is useful since the capacity level is expressed through a fuzzy
number. Fuzzy programming is also suitable for forecasting modelling, since fore-
casts depend on external events and are represented more effectively as a set of
possible values with different values o^ membership grade function rather than as
crisp values. The resulting algorithm supporting the generate function is a combi-
natorial hard task: to solve this, a heuristic method based on genetic algorithms
has been developed.

4.4 Internal level of the 'Learning' model

Within ihe 'Learning' model, agents are more intelligent than in the previous ones.
due to their ability to learn from the past: here, agents" intelligence allows them
to reset criteria threshold values according to data analysis. In particular, the
•Learning" model has been developed to manage a product life cycle: the model
is able to grasp the moment in which a product is mature, while another is phased
in; at this point, resources should be de-allocated from the mature product and
allocated to the rising product, while a higher threshold value for stock-in criteria
should be lixed for the rising product and lower for the mature product. Threshold
parameters are always reset after a negotiation with trading partners, so that
synchronization between supply-chain trading partners is improved.
The conceptual schema of this model is an extension of that designed for the
'Advanced" model. The additional layer present only here (i.e. the learning one)
operates side by side and analyses real data: it continuously monitors the pattern
over time of some key performance indexes; and it suggests criteria threshold values.
Moreover, this layer monitors and communicates exceptions, generates solutions
(these functions are the same as the deliberative layer) and calculates and updates
criteria threshold values.
The starting point of the learning layer lies in applying a solution-generating
function, which is the same as that of the 'Advanced' model. However, in this
case constraints regarding stock-in, shortage and maximum inventory are not
taken into account during relaxation, since the agents may decide to de-allocate
and allocate resources autonomously: e.g, for a given product, a lower stock-in
level than the current one might prove profitable, and vice versa for another product.
 4208 M. Caridi et al.

Once the optimal solution is generated, the next step lies in evaluating inventory
and stock-in data. This task is twofold: a hypothesis testing is carried out. and a
possible proposal for new values is determined. Then, after having calculated these
new values, they are communicated to the deliberative layer, so as to improve the
process of calculating solutions to solve exceptions.
In particular, a hypothesis testing regarding population mean with variance
unknown is carried out by formulating the problem as follows: H O : M = M O ;
H,: /J 7^^,,, where ^o is the current value of the stock-in percentage or inventory
level used as the minimum or maximum to generate exceptions. The statistics
used for the test are: tn = {ii - iiJKSjn '), where u is the value of sample mean,
and .V is the value of sample variance and used to estimate the unknown population
variance a". .V Is calculated as E"=i ( « / - " ) ' / ( " - D. where ;/, denotes the single
values of the sample, and n is the sample size. The null hypothesis (i.e.
H,,: fi = fio) is rejected when |/,|| > f^-2.,,-\- where ^,2.,,-i indicates the upper Qf/2
percentile of the Student (also called i) distribution with n-l degrees of freedom.
If the hypothesis is rejected, stock-in or inventory level threshold values should
be changed; to estimate the new values, the following confidence interval can be
used: ii - t^/2.r,-i{Sln"')< fi <u+i^...,,. i(S/n''''). The new threshold values are
set according to table 2, which represents a possible suggestion, since the adjust-
ments depend on the specific company under study and on the company"s priorities.
After updatmg the threshold values, they are communicated to the deliberative
layer, so as to improve the process of calculating solutions to solve exceptions.

5. Model implementation and experimental design

The models proposed in this study have been simulated using the S1MPLE++
software tool, which provided the following four features: (1) object orientation,
which helps in building software agents (which represent the single company) and
some functions inside the company; (2) hierarchical approach, which allows one
to represent the organizational structure of companies; (3) modular modelling,
which allows one to structure each agent (with its different layers) in which different
types of elaboration take place; (4) inheritance, which allows one to build a model
by simply inheriting and extending modules of other models.
The main SIMPLE++ objects used in all the three models are: (1) frames, where
model objects are placed and combined in order to build up hierarchical models;
(2) entities, which are forecasts and items; (3) sources, which generate forecasts,
each time a planning period has elapsed; (4) singleProc. which represents the retailer
and manufacturer trading partners, as well as monitor, production and transport

Table 2. Threshold setting aceordiny lo item and criteria priority.

Stock-in priorily Inventory-level priority
Item priority Low High Low High
Low t~i-!^2.-,-i (Sin'') ft ^ " + /,,2.,,-i (Sn'') ,1
fi u + !,,2.,,-\ {S:n'') u i'i-1,.2.,,-1 (Sin'')
 Improving supply-chain collahoralion 4209

functions; (5) buffers, which represent the warehouses and stores of the retailer
and manufacturer; (6) methods, which are the repository of agent intelligence.
For each model, three layers (i.e. frames, according to the SIMPLE++ notation)
have been built: the first is used to store general data; the second (called CPFR)
generates forecasts and solves exceptions; the third (called operational) monitors
whether exceptions arise and represents the material flows along the supply chain.
While the first and the third layers are the same for all the models, the CPFR layer
is provided with difTerent structures according to different abilities to solve excep-
tions. Moreover, to simulate the "Learning" model, a fourth layer (called learning)
is introduced to update the criteria threshold values.
The relevant factors used to set up the design of experiments have been pin-
pointed on the basis of the following remarks. The first considered item is repre-
sented by demand: two main demand shapes are studied for the three modelled
products, i.e. a stationary demand (for which three values of variance are considered)
and a demand with trend (for which three slopes are considered); in this way, two
factors are identified, i.e. demand variance and demand trend. Table 3 synthesizes
the experimental values of demand variance and demand trend (the trend value
represents the growth of demand in each planning period).
The third factor is represented by forecast accuracy, which represents the max-
imum departure allowed when comparing retailer order forecast and manu-
facturer sales forecast; this factor indicates the commitment and the relationship
between supply-chain actors: a tight accuracy leads to long negotiations, due to
the high probability that exceptions arise. The experimental forecast accuracy
values are 0.2. 0.25 and 0.3. Finally, the model type (i.e. either CPFR or
•Advanced" or "Learning") represents the fourth considered factor.
On the basis of the four factors highlighted above, each considered at three levels
(i.e. low. medium and high), two experimental campaigns have been conducted, each
according to a 7>^ full factorial design of experiments (Montgomery 19S4. 1985). In
the first campaign, the factors considered are: model type, demand variance and
forecast accuracy. In the second campaign the factors considered are: mode! type,
forecast accuracy and demand trend. As a result, there are a total of 54 combinations
(i.e. 2 X 27) of experimental factors. For each combination of experimental factors.
24 replications are made. This is to provide an adequate likelihood to the data
evaluation and also to appropriately model the variance inherently embedded in
the system's noise factors. The noise factors considered are: demand, bullwhip
eflecl, cost structure.

Table 3. Experimental values of demand variance antl trend.

Pmdua I Prodncl 2 Product 3

Demand variance Low 10 15 20

Medium 15 25 30
High 20 40 50
OemiUid trend Low 2 2 2
Medium 3 3 3
High 5 -•^
5
4210 M. C

Three demand shapes have been considered (always corresponding to the same
overall sum): in the first case (DI), demand is uniformly distributed among the three
products (respectively 50, 80, 100 units); in the second case (D2). it is polarized on
one product (50, 60. 120). and in the third case (D3), it is polarized on two products
(40, 90, 100). Then, to verify how the models react to the different production
capacity allocations along the supply chain, two cases are considered: (1) the manu-
facturer is the bottleneck: the manufacturer capacity is 330 units, whereas the retai-
ler's capacity is 350 units; (2) the retailer is the bottleneck: the manufacturer capacity
is 400 units, whereas the retailer's capacity is 380 units.
Moreover, two different stochastic distributions for the manufacturer retailer's
and order forecasts have been introduced by defining the mean value and the
variance value, for each demand profile, as reported in table 4.
Finally, two different cost structures are introduced as input of the agents" func-
tion of generating solutions. In particular, when generating solutions, the following
terms of the objective function vary: the cost of production/purchasing (v), the
inventory holding cost {h). the cost of transportation {c) and the stock-out cost,
which is modelled as the difference between price {p) and variable costs. Table 5
lists the experimental values of the cost items.
As a result, the 24 replications for each combination of experimental factors
correspond to three demand mean values, two production capacity levels, two bull-
whip-efTect amplification values and two cost structures, thus resulting in 648 experi-
ments (i.e. 24x27) for each campaign (and 1296 as a whole), which accounts
for about I700h of simulation. In addition, the following assumptions have been
made: (1) three items are considered, with the opportunity of backlogging and of
in-advance shipment within the planning period; (2) each planning period is made
up of 3 week time buckets (e.g. weeks); (3) the planning horizon comprises eight
planning periods, which correspond to 168 days, i.e. approximately 6 months (there-
fore, in each experiment, both the manufacturer and retailer negotiate on eight
sales forecasts and eight order forecasts); (4) the confidence interval corresponds
to 99.5% probability.
Finally, since the main goal of CPFR is to solve the critical trade-off between
inventory level, stock-in, lost sales and total costs, the performance indexes consid-
ered are: total costs, total inventory and mean stock-in. For each model, each per-
formance index has been calculated separately for the manufacturer, retailer and
whole supply chain.

6. Results

The main results coming from the experimental campaigns are analysed here in
terms of the average percentage differences between each couple of models (i.e.
•Advanced" vs. CPFR and 'Learning' vs. CPFR) in relation to each controlled
parameter. So. for each performance index. P. the corresponding differences 5|
and ^2 are computed as follows:

'^ :^tZ^^ 100 (I)

Improving supplv-chain colUihoration 4211

c
o
c
X
o H
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bution tun
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QQ QCQ Q
4212 M- Caridi Q\ al.

Table 5. Experimental values of cost terms.

First combination Second combination

Product 1 Product 2 Product 3 Product 1 ProducI 2 Product 3

Retailer Cost of transportation 10 10 10 10 10 10

Production cosi (r) 100 140 170 80 120 150

Inventory 20 20 20 40 40 40
holding cost (//)
Price (/j) 200 220 270 220 220 270
Manufacturer Cost of 10 10 10 10 10 10
transportation (c)
Production cost (r) 20 30 40 20 30 40
Inventory 10 10 10 30 30 30
holding cost (/;)
Price (/)) 100 140 170 80 120 150

The firsl aiui genera! outcome of the whole analysis is that the "Advanced" model and
the 'Learning' model determine lower total costs than CPFR (on average by 3.76%
and 6.32%, respectively), when the demand variance and demand trend vary.
Moreover, the "Learning" model total costs are lower than the "Advanced" costs
for almost all the available configurations. Therefore, the two agent-based models
(i.e. 'Advanced' and "Learning") meet the goal of cost tninimization. Furthermore,
the higher intelligence of "Learning" model agents (which can learn and negotiate)
leads to lower total costs by cotnparison with the "Advanced" model: the "Learning"
model has an edge over the "Advanced" tnodel by 2.55% on average when both
demand variance and detnand slope increase (see also figures 2 and 3).
Tables 6 and 7 report the detailed results for both e.\perimental campaigtis.
and from these, one can gain a further insight into the comparative performances
of models. In particular, as for the "Advanced" vs. CPFR model, the following
remarks can be highlighted. First, within the second experitnental session, the
"Advanced" model always exhibits a lower total inventory, with a deviation that
runs at about 10%. Then, in both experimental campaigns, the "Advanced' model
presents lower total lost sales (reaching a deviation o'L about 22%) and lower total
costs (reaching a deviation of about 18% when analysing the single factor and about
5% deviation when analysing the whole supply chain). Finally, the 'Advanced"
tnodel presents a lower mean stock-in in tnost experimental combinations, by
reaching a 7% deviation.
When comparing the 'Learning" atid CPFR tnodels, the main conclusions are
as follows. In both experimental campaigns the 'Learning" model presents lower
total eosts. and the deviation reaches very high values (up to 23%). Moreover,
the "Learning" model presents minor total lost sales (about 9% lower than the
CPFR model) in almost all combinations of parameters. As for the remaining
paratneters (i.e. total inventory and tnean stoek-in), the "Learning" model does not
present a good performance.
The above-stated conclusions are still valid when comparing the "Advanced"
model and the 'Learning" model, although the deviation extent is different.
The "Learning" mode! exhibits lower total costs {the maximum deviation is equal
to 8%). whereas it has a poorer performance in terms of total inventory (up to 14%)
 17/1,1,' .supply-iluiin co/lahorafioii 4213

Low Medium High

Demand
variance
y -2.0(1%
I -3.00'S
? -4.00%

-5.85% n AiivanL-c<J vs. CPFR

• t,carning vs. CPFR
-S.00% -
-1.9m,-
Figure 2. Percentage differences in terms of total cost betweeti the 'Advanced" vs. CPFR
model and the 'Leitrning' vs. CPFR tnodel, when demand variance increases.

Low Medium
Demand
-3.00"^ trend
2 -4.00%-
-4.07% - 4 00'
I -5.00%- -4.63'7,
J -6.00%-
§ -7.(X)%- DAdvanccdvs. CPFK
DLcurning vs. CPFR -7.08%
I -8.00%-
-9.00% -I

Figure ."1. Pcrcetitage diflerenccs in terms of total cost between the 'Advanced' vs.
CPFR model and the "Leiirnlng' vs. CPFR model, when the slope of Ihe demand trend
increases.

and stock-in (about 6%). Finally, as regards total lost sales, the 'Learning'
performance is poorer than that of the 'Advanced" model, and the deviation can
reach 27%.
Detailed results have been analysed according to demand variance. The main
outcomes are summarized as follows. The 'Advanced" and "Learning" models present
a lower total inventory than the CPFR model when the dernand variance is low.
Nevertheless, when the detnatid variance increases, the inventory level increases and
can become higher than that for CPhR. The 'Advanced" and "Learning' models
always present lower total lost sales than the CPhR tnodel. but the deviation
decreases when the demand variance increases; nevertheless, it never becomes
poshive. Concerning total costs, the deviation between the 'Advanced' model and
the CPFR tnodel presents the satne pattern as stated for total lost sales, whereas the
deviation between the 'Learning' model and the CPFR tnodel increases when
the demand variance increases. Finally, when analysing the mean stock-in
parameter, no clear pattern can be detected.
By analysing the results according to demand trend, the following can be
deduced. The "Advanced' model presents lower total lost sales than both
the CPFR model and the 'Learning' model, and the deviation is higher when
the demand trend increases. The 'Learning" model presents the lowest total costs.
4214 M. Ciiriili et al.

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and the deviation is higher when the demand trend increases. The "Advanced' model
exhibits a higher mean stock-in, compared with the other models (mainly as far as
the supply chain is eoncerned), and the deviation increases with demand trend.
Finally, the analysis according forecast accuracy led to the following main
results. The mean stock-in generally decreases when the forecast accuracy increases.
The "Advanced" and "Learning' models present the lowest total costs, and this
performance is strengthened when the forecast accuracy increases.
Summing up the previous remarks, the 'Advanced' model generally pre.sents
the best performances in most of the experimental combinations: it calculates solu-
tions with low costs (even if it is not as low as in the "Learning" model), low lost
sales, acceptable inventory levels and acceptable mean stock-in level, except for
some combinations of the first experimental campaign where the CPFR yields
better results (even if the deviation is very low). The "Learning" model finds the
lowest cost solutions, but generally with higher inventory levels, higher lost sales
and lower average stock-in level, compared with the other two models. The CPFR
model presents the highest cost solutions, generally higher total lost sales, generally
a higher inventory level and an acceptable mean stock-in level.
Therefore, the "Advanced" model shows better performances in several experi-
mental combinations of parameters, by presenting a good trade-off between total
costs, inventory level, mean stock-in and total lost sales; this allows the "Advanced"
model to reach acceptable performances in both experimental campaigns. Moreover,
the "Advanced" model presents a good trade-off between solution goodness and
processing time: in particular, in each experimental run. the "Advanced" model
processing time is intermediate between the CPFR and the "Learning' model.

7. Conclusions and future research directions

The standpoint of this study lies in the CPFR process and. more specifically, in the
way the exceptions regarding sales and order forecast are solved. In this area, the
requirement of both automation and optimization of the negotiation process can
be fulfilled by a multi-agent system. In this study, for the scenario in which two
trading partners collaborate, two multi-agent systems are considered respectively
embedded in the "Advanced" mode! and in the "Learning" model. The "Advanced"
model is able to recognize and to dynamically solve the exceptions according to
the criteria threshold values (e.g. minimum stock-in, maximum inventory level) set
in the front-end agreement between partners. The "Learning' model, which is an
evolution of the 'Advanced' model, allows the criteria threshold values to be updated
by the model itself through the analysis of historical data.
Experimental results from the double simulation campaign indicate that, when
demand is plagued by variance without trend, the "Advanced" and CPFR models
have a better performance in terms o^ total inventory and stock-in. Besides, the
"Advanced" model reaches the lowest level of total lost sales, while the "Learning"
model finds solutions with the lowest total eosts. Moreover, when demand is subjeet
to trend, the "Advanced" model perfoms best in terms of total inventory, total lost
sales, total costs, and mean stock-in, while the 'Learning" model finds solutions
with the lowest total cost. Finally, the ability of the 'Learning" model to exhibit
increasingly better performances (in terms of total eost) is noticeable when both
 Improving supply-cludn colhihorafion 4217

demand variance and demand trend increase, thus having an edge over ihc other
models in the environments with a low level of forecast accuracy.
This study represents a first step toward the analysis of the multi-agent system
to automate and optimize collaboration along the supply chain, and it can be
hnprovcd almost along three research lines. First of all. other experimental cam-
paigns with different input data structures may be conducted, e.g. by giving
the 'Advanced' and the "Learning" model a different objective function in the
algorithm for generating solutions.
Then, real-life implementations of CPFR actually regard only a one-to-one
scenario, for which the coneeptual model presented here has been conceived und
tested: however, three more scenarios can be interesting: (I) the one-to-many
scenario, in that it represents the hub-and-spoke sysiems where the bargaining
power is unevenly distributed along the supply chain: (2) the /j-tier scenario
(e.g. one-to-one-to-one), where more than two levels of the supply chain are
involved; and (3) the many-to-many scenario, which can be used to study the
so-called marketplaces.
Finally, the multi-agent model may be integrated with a SCFM-like (Supply
Chain Event Management) approaeh. which manages exceptions arising at the
operational level, through the adoption of a multi-agent system at the level of
inventory management, sales management and production management, along all
the supply chain.

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