IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v6y2004i2p163-183.html
   My bibliography  Save this article

Coordinating Supply Chains by Controlling Upstream Variability Propagation

Author

Listed:
  • Anantaram Balakrishnan

    () (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

  • Joseph Geunes

    () (Department of Industrial and Systems Engineering, University of Florida, Gainesville, Florida 32611)

  • Michael S. Pangburn

    () (Lundquist College of Business, University of Oregon, Eugene, Oregon 97403)

Abstract

Effective distribution using collaborative fulfillment networks requires coordination among the multiple participating firms at different stages of the supply chain. Acting independently, supply chain partners fail to weigh the cost burden they impose on upstream suppliers when their replenishment order quantities vary from period to period. This paper explores a new approach to coordinate multiple stages in the supply chain by controlling, through appropriate downstream inventory management, the demand variability that is propagated to upstream stages. We propose and analyze a coordinated inventory replenishment policy that uses "order smoothing" to reduce order-size variability and thus reduce overall system costs, including both inventory and transportation costs. We characterize the optimal parameter values for smoothing alternatives (such as exponential smoothing and moving weighted average policies), assess their economic benefits, and develop insights regarding supply chain contexts that might benefit most significantly from reducing the variability of orders to upstream stages. Using the distribution network for specialty brand appliances as an illustrative example, we demonstrate the potential cost savings that order-smoothing strategies can yield compared to the uncoordinated case when individual firms separately minimize their costs. The magnitude of savings depends on several factors, including the variability in consumer demand, level of product variety, and degree of inventory aggregation in the distribution system. Based on our analytical results, we develop a framework to assess cost reduction opportunities through variability control for different supply chain scenarios.

Suggested Citation

  • Anantaram Balakrishnan & Joseph Geunes & Michael S. Pangburn, 2004. "Coordinating Supply Chains by Controlling Upstream Variability Propagation," Manufacturing & Service Operations Management, INFORMS, vol. 6(2), pages 163-183, July.
  • Handle: RePEc:inm:ormsom:v:6:y:2004:i:2:p:163-183
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/msom.1030.0031
    Download Restriction: no

    References listed on IDEAS

    as
    1. Hau L. Lee & Kut C. So & Christopher S. Tang, 2000. "The Value of Information Sharing in a Two-Level Supply Chain," Management Science, INFORMS, vol. 46(5), pages 626-643, May.
    2. Fangruo Chen, 1999. "Decentralized Supply Chains Subject to Information Delays," Management Science, INFORMS, vol. 45(8), pages 1076-1090, August.
    3. Bourland, Karla E. & Powell, Stephen G. & Pyke, David F., 1996. "Exploiting timely demand information to reduce inventories," European Journal of Operational Research, Elsevier, vol. 92(2), pages 239-253, July.
    4. Hau Lee & Seungjin Whang, 1999. "Decentralized Multi-Echelon Supply Chains: Incentives and Information," Management Science, INFORMS, vol. 45(5), pages 633-640, May.
    5. Mordechai Henig & Yigal Gerchak & Ricardo Ernst & David F. Pyke, 1997. "An Inventory Model Embedded in Designing a Supply Contract," Management Science, INFORMS, vol. 43(2), pages 184-189, February.
    6. Fangruo Chen, 2001. "Market Segmentation, Advanced Demand Information, and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 3(1), pages 53-67, February.
    7. Charles J. Corbett & Gregory A. DeCroix, 2001. "Shared-Savings Contracts for Indirect Materials in Supply Chains: Channel Profits and Environmental Impacts," Management Science, INFORMS, vol. 47(7), pages 881-893, July.
    8. Gérard P. Cachon, 1999. "Managing Supply Chain Demand Variability with Scheduled Ordering Policies," Management Science, INFORMS, vol. 45(6), pages 843-856, June.
    9. John D. Sterman, 1989. "Modeling Managerial Behavior: Misperceptions of Feedback in a Dynamic Decision Making Experiment," Management Science, INFORMS, vol. 35(3), pages 321-339, March.
    10. Dejonckheere, J. & Disney, S. M. & Lambrecht, M. R. & Towill, D. R., 2003. "Measuring and avoiding the bullwhip effect: A control theoretic approach," European Journal of Operational Research, Elsevier, vol. 147(3), pages 567-590, June.
    11. 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.
    12. 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.
    13. 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.
    14. Rema Hariharan & Paul Zipkin, 1995. "Customer-Order Information, Leadtimes, and Inventories," Management Science, INFORMS, vol. 41(10), pages 1599-1607, October.
    15. Allan B. Cruickshanks & Robert D. Drescher & Stephen C. Graves, 1984. "A Study of Production Smoothing in a Job Shop Environment," Management Science, INFORMS, vol. 30(3), pages 368-380, March.
    16. Guillermo Gallego & Özalp Özer, 2001. "Integrating Replenishment Decisions with Advance Demand Information," Management Science, INFORMS, vol. 47(10), pages 1344-1360, October.
    17. Dejonckheere, J. & Disney, S. M. & Lambrecht, M. R. & Towill, D. R., 2002. "Transfer function analysis of forecasting induced bullwhip in supply chains," International Journal of Production Economics, Elsevier, vol. 78(2), pages 133-144, July.
    18. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    19. Srinagesh Gavirneni & Roman Kapuscinski & Sridhar Tayur, 1999. "Value of Information in Capacitated Supply Chains," Management Science, INFORMS, vol. 45(1), pages 16-24, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boute, Robert N. & Disney, Stephen M. & Lambrecht, Marc R. & Van Houdt, Benny, 2007. "An integrated production and inventory model to dampen upstream demand variability in the supply chain," European Journal of Operational Research, Elsevier, vol. 178(1), pages 121-142, April.
    2. Hosoda, Takamichi & Disney, Stephen M., 2012. "On the replenishment policy when the market demand information is lagged," International Journal of Production Economics, Elsevier, vol. 135(1), pages 458-467.
    3. Hoberg, Kai & Bradley, James R. & Thonemann, Ulrich W., 2007. "Analyzing the effect of the inventory policy on order and inventory variability with linear control theory," European Journal of Operational Research, Elsevier, vol. 176(3), pages 1620-1642, February.
    4. Kunnumkal, Sumit & Topaloglu, Huseyin, 2008. "Price discounts in exchange for reduced customer demand variability and applications to advance demand information acquisition," International Journal of Production Economics, Elsevier, vol. 111(2), pages 543-561, February.
    5. Herman de Kwaatsteniet, 2011. "Demand Variability in Supply Chains: The Influence of Global developments and Globalization on the Local Dutch Steel Industry," Working Papers 2011/32, Maastricht School of Management.
    6. repec:eee:proeco:v:197:y:2018:i:c:p:330-341 is not listed on IDEAS
    7. Disney, Stephen M. & Maltz, Arnold & Wang, Xun & Warburton, Roger D.H., 2016. "Inventory management for stochastic lead times with order crossovers," European Journal of Operational Research, Elsevier, vol. 248(2), pages 473-486.
    8. repec:eee:ejores:v:262:y:2017:i:1:p:75-88 is not listed on IDEAS
    9. Boute, Robert N. & Disney, Stephen M. & Lambrecht, Marc R. & Van Houdt, Benny, 2009. "Designing replenishment rules in a two-echelon supply chain with a flexible or an inflexible capacity strategy," International Journal of Production Economics, Elsevier, vol. 119(1), pages 187-198, May.
    10. Chatfield, Dean C. & Pritchard, Alan M., 2013. "Returns and the bullwhip effect," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 159-175.
    11. repec:eee:proeco:v:201:y:2018:i:c:p:149-162 is not listed on IDEAS
    12. Hosoda, Takamichi & Disney, Stephen M., 2012. "A delayed demand supply chain: Incentives for upstream players," Omega, Elsevier, vol. 40(4), pages 478-487.
    13. Disney, S.M. & Farasyn, I. & Lambrecht, M. & Towill, D.R. & de Velde, W. Van, 2006. "Taming the bullwhip effect whilst watching customer service in a single supply chain echelon," European Journal of Operational Research, Elsevier, vol. 173(1), pages 151-172, August.
    14. repec:eee:proeco:v:196:y:2018:i:c:p:12-23 is not listed on IDEAS
    15. repec:eee:proeco:v:191:y:2017:i:c:p:221-232 is not listed on IDEAS
    16. Kim, Ilhyung & Springer, Mark, 2008. "Measuring endogenous supply chain volatility: Beyond the bullwhip effect," European Journal of Operational Research, Elsevier, vol. 189(1), pages 172-193, August.
    17. Oliveira, Fernando S. & Ruiz, Carlos & Conejo, Antonio J., 2013. "Contract design and supply chain coordination in the electricity industry," European Journal of Operational Research, Elsevier, vol. 227(3), pages 527-537.
    18. Wang, Xun & Disney, Stephen M., 2016. "The bullwhip effect: Progress, trends and directions," European Journal of Operational Research, Elsevier, vol. 250(3), pages 691-701.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:6:y:2004:i:2:p:163-183. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.