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Information Flows in Capacitated Supply Chains with Fixed Ordering Costs

Listed author(s):
  • 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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    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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    1. Fangruo Chen, 1998. "Echelon Reorder Points, Installation Reorder Points, and the Value of Centralized Demand Information," Management Science, INFORMS, vol. 44(12-Part-2), pages 221-234, December.
    2. Gérard P. Cachon & Marshall Fisher, 2000. "Supply Chain Inventory Management and the Value of Shared Information," Management Science, INFORMS, vol. 46(8), pages 1032-1048, August.
    3. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    4. Srinagesh Gavirneni & Roman Kapuscinski & Sridhar Tayur, 1999. "Value of Information in Capacitated Supply Chains," Management Science, INFORMS, vol. 45(1), pages 16-24, January.
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