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Managing Supply Chain Demand Variability with Scheduled Ordering Policies

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  • Gérard P. Cachon

    (Duke University, Fuqua School of Business, Durham, North Carolina 27708)

Abstract

This paper studies supply chain demand variability in a model with one supplier and Nretailers that face stochastic demand. Retailers implement scheduled ordering policies: Orders occur at fixed intervals and are equal to some multiple of a fixed batch size. A method is presented that exactly evaluates costs. Previous research demonstrates that the supplier's demand variance declines as the retailers' order intervals are balanced, i.e., the same number of retailers order each period. This research shows that the supplier's demand variance will (generally) decline as the retailers' order interval is lengthened or as their batch size is increased. Lower supplier demand variance can certainly lead to lower inventory at the supplier. This paper finds that reducing supplier demand variance with scheduled ordering policies can also lower total supply chain costs.

Suggested Citation

  • Gérard P. Cachon, 1999. "Managing Supply Chain Demand Variability with Scheduled Ordering Policies," Management Science, INFORMS, vol. 45(6), pages 843-856, June.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:6:p:843-856
    DOI: 10.1287/mnsc.45.6.843
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    File URL: http://dx.doi.org/10.1287/mnsc.45.6.843
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    References listed on IDEAS

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    1. Edward J. McGavin & Leroy B. Schwarz & James E. Ward, 1993. "Two-Interval Inventory-Allocation Policies in a One-Warehouse N-Identical-Retailer Distribution System," Management Science, INFORMS, vol. 39(9), pages 1092-1107, September.
    2. Stephen C. Graves, 1996. "A Multiechelon Inventory Model with Fixed Replenishment Intervals," Management Science, INFORMS, vol. 42(1), pages 1-18, January.
    3. Steven Nahmias & Stephen A. Smith, 1994. "Optimizing Inventory Levels in a Two-Echelon Retailer System with Partial Lost Sales," Management Science, INFORMS, vol. 40(5), pages 582-596, May.
    4. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
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