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Information Sharing and Order Variability Control Under a Generalized Demand Model

By Li Chen and Hau Lee


The value of information sharing and how it could address the bullwhip effect have been the subject of studies in the literature. Most of these studies used different forms of demand models, assumed that the supplier has full knowledge of the underlying demand model and the order policy of the retailer, and no order smoothing was used by the retailer. In this paper, we aim at contributing to the literature by starting with a most general demand model, coupled with a smoothing policy for order variability control being in place. We explore the optimal smoothing parameters that could benefit the total supply chain. In addition, we also do not require that the supplier has full knowledge of the retailer’s demand model and order policy, but instead let the retailer share its projected future orders (and freely revise them as the retailer sees fit). However, we do assume that the supplier will use the historical projected order information to determine the stochastic characterization of the order revision process, which we believe is a quite reasonable assumption as it is what the supplier would naturally do. Under such a setting, we explore the value of information sharing by the retailer and the resulting bullwhip effect

Topics: Key words, Supply Chain Management, Information Sharing, Inventory Control, Order Smoothing, Variability Reduction, MMFE Model. Department of review, Operations and Supply Chain Management
Year: 2011
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