The impact of inventory sharing on the bullwhip effect in decentralized inventory systems
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ORIGINAL PAPER
The impact of inventory sharing on the bullwhip effect in decentralized inventory systems Dang Van Le • Luong Trung Huynh • Kifor Vasile Claudiu • Muntean Achim
Received: 12 April 2012 / Accepted: 21 November 2012 / Published online: 19 December 2012 Springer-Verlag Berlin Heidelberg 2012
Abstract The paper derives the impact of inventory sharing policy on the bullwhip effect in two-stage supply chains with two independent suppliers and two integrated retailers. There exists an inventory sharing policy between two retailers. Under inventory sharing policy, when demand in one retailer exceeds its inventory, this retailer can ask for a product sharing volume from the other in order to satisfy customer demand. With certain assumptions, the bullwhip effect is quantified in both cases, with inventory sharing policy and without inventory sharing policy. We found that inventory sharing has significant impact on the bullwhip effect in the supply system. However, inventory sharing policy does not synchronously reduce or increase the bullwhip effect in both suppliers in the same period. A numerical example is given to illustrate the study model. Keywords Inventory sharing policy Bullwhip effect Supply chain management Decentralized inventory Order lead time
1 Introduction The information about customer demand is varied through the levels of the chain due to many factors (e.g., inventory policy, forecasting method, order lead time, etc.). In twoD. V. Le (&) L. T. Huynh School of Engineering and Technology, Asian Institute of Technology, Bangkok, Thailand e-mail: [email protected] K. V. Claudiu M. Achim Faculty of Engineering and Technology, Lucian Blaga University of Sibiu, Sibiu, Romania
stage supply chain, retailers are the parties who receive customers’ demands directly. To satisfy customers’ service, usually customer demand is estimated by using forecasting techniques before placing order to supplier. The lacking of information leads to fluctuation orders from all levels of the chain in term of volumes. The fluctuation of customer demand through the chain is well known as the bullwhip effect [3, 19]. In Fig. 1, we can see the fluctuation of customers’ demands through different facility epochs in a four-stage supply chain with single manufacturer, distributor, wholesaler, and retailer. We may notice that demands fluctuation increases from lower levels to higher levels in the chain. The reasons can be explained as follows: the retailer has directly customer information. Retailer will use this information to estimate actual demands. To maintain desired service level, retailer needs to hold a certain inventory in the warehouse. That leads to the wholesaler will receive higher original orders from the retailer. Similarly, wholesaler receives customer information from the retailer and places an order to his supplier, the distributor. To determine the order quantities from retailer, the wholesaler must forecast customer demand. Unfortunately, the wholesaler does not have access to the cus
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