The Limits of Static Decision Rules in Supply Chain Games

It is well known that static supply chain models ignore the future consequences of current actions. This shortsighted behavior can result either from the omission of the dynamics of important stock variables or from the use of extreme discounting. This chapter shows that the use of static supply chain models based on the omission of the evolution of important stock variables can lead to wrong decisions. To this end, we successively consider a series of simple issues representative of supply chain management. For each issue, two versions of a supply chain game are defined, one static and the other dynamic. For both versions, cooperative and non-cooperative scenarios are considered. For the static version, we do not use a naïve formulation but instead adopt an anticipatory perspective wherein the repetition of the static game over a given time horizon accounts for the update of the considered performance of the current period based on the previous period. Regarding the dynamic version, we use the framework of differential game theory. We then compare the decision rules and outcomes, respectively, inferred from the static and dynamic versions of the supply chain game considered. For each issue of interest, we show that the static decision rules provide distorted outcomes and misleading managerial prescriptions.