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Information Flows in Capacitated Supply Chains with Fixed Ordering Costs


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  • Srinagesh Gavirneni

    (8804 Rattlebush Cove, Austin, Texas 78750)

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    Many organizations have only recently recognized that sharing information with other members in their supply chain can lead to signficant reduction in the total costs.Usually these information flows are incorporated into existing operating policies at the various parties.In this paper we argue that, in some cases, it may be necessary to change the way the supply chain is managed to make complete use of the information flows. We support this argument by analyzing a supply chain containing a capacitated supplier and a retailer facing i.i.d. demands. In addition there are fixed ordering costs between the retailer and the supplier.In this setting, we consider two models: (1) the retailer is using the optimal (s,S) policy and providing the supplier information about her inventory levels; and (2) the retailer, still sharing information on her inventory levels, orders in a period only if by the previous period the cumulative end-customer demand since she last ordered was greater than \delta . Thus, in Model 1, information sharing is used to supplement existing policies; while, in Model 2, we have redefined operating policies to make better use of the information flows. We will show, via a detailed computational study, that the total supply chain costs of Model 2 are 10.4% lower, on the average, than that of Model 1. We noticed that this reduction in costs is higher at higher capacities, higher supplier penalty costs, lower retailer penalty costs, moderate values of set-up cost, and at lower end-customer demand variances.

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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 48 (2002)
    Issue (Month): 5 (May)
    Pages: 644-651

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    Handle: RePEc:inm:ormnsc:v:48:y:2002:i:5:p:644-651

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    Keywords: supply chain management; information sharing; inventory control;


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    Cited by:
    1. Hsu, Chaug-Ing & Li, Hui-Chieh, 2011. "Reliability evaluation and adjustment of supply chain network design with demand fluctuations," International Journal of Production Economics, Elsevier, vol. 132(1), pages 131-145, July.
    2. Yoon, Sang Won & Nof, Shimon Y., 2011. "Affiliation/dissociation decision models in demand and capacity sharing collaborative network," International Journal of Production Economics, Elsevier, vol. 130(2), pages 135-143, April.
    3. Sari, Kazim, 2008. "On the benefits of CPFR and VMI: A comparative simulation study," International Journal of Production Economics, Elsevier, vol. 113(2), pages 575-586, June.
    4. Fawcett, Stanley E. & Magnan, Gregory M. & McCarter, Matthew W., 2005. "Benchmarking Information Integration in Supply Chain Management: A Multi-channel Approach," Working Papers 05-0117, University of Illinois at Urbana-Champaign, College of Business.
    5. Kwak, Jin Kyung & Gavirneni, Srinagesh, 2011. "Retailer policy, uncertainty reduction, and supply chain performance," International Journal of Production Economics, Elsevier, vol. 132(2), pages 271-278, August.
    6. Mukhopadhyay, Samar K. & Yao, Dong-Qing & Yue, Xiaohang, 2008. "Information sharing of value-adding retailer in a mixed channel hi-tech supply chain," Journal of Business Research, Elsevier, vol. 61(9), pages 950-958, September.
    7. Byrne, P.J. & Heavey, Cathal, 2006. "The impact of information sharing and forecasting in capacitated industrial supply chains: A case study," International Journal of Production Economics, Elsevier, vol. 103(1), pages 420-437, September.
    8. Moghaddam, Mohsen & Nof, Shimon Y., 2014. "Combined demand and capacity sharing with best matching decisions in enterprise collaboration," International Journal of Production Economics, Elsevier, vol. 148(C), pages 93-109.
    9. Caridi, Maria & Crippa, Luca & Perego, Alessandro & Sianesi, Andrea & Tumino, Angela, 2010. "Do virtuality and complexity affect supply chain visibility?," International Journal of Production Economics, Elsevier, vol. 127(2), pages 372-383, October.
    10. Kurata, Hisashi & Yue, Xiaohang, 2008. "Trade promotion mode choice and information sharing in fashion retail supply chains," International Journal of Production Economics, Elsevier, vol. 114(2), pages 507-519, August.
    11. Chao, Gary H., 2013. "Production and availability policies through the Markov Decision Process and myopic methods for contractual and selective orders," European Journal of Operational Research, Elsevier, vol. 225(3), pages 383-392.


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