Improving supply chain performance: Real-time demand information and flexible deliveries
Abstract
In some supply chains, materials are ordered periodically according to local information.
This paper investigates how to improve the performance of such a supply chain. Specifically,
we consider a serial inventory system in which each stage implements a local reorder
interval policy; i.e., each stage orders up to a local basestock level according to
a fixed-interval schedule. A fixed cost is incurred for placing an order. Two improvement
strategies are considered: (1) expanding the information flow by acquiring real-time
demand information and (2) accelerating the material flow via flexible deliveries.
The first strategy leads to a reorder interval policy with full information; the second
strategy leads to a reorder point policy with local information. Both policies have
been studied in the literature. Thus, to assess the benefit of these strategies, we
analyze the local reorder interval policy. We develop a bottom-up recursion to evaluate
the system cost and provide a method to obtain the optimal policy. A numerical study
shows the following: Increasing the flexibility of deliveries lowers costs more than
does expanding information flow; the fixed order costs and the system lead times are
key drivers that determine the effectiveness of these improvement strategies. In addition,
we find that using optimal batch sizes in the reorder point policy and demand rate
to infer reorder intervals may lead to significant cost inefficiency. © 2010 INFORMS.
Type
Journal articlePermalink
https://hdl.handle.net/10161/4431Published Version (Please cite this version)
10.1287/msom.1090.0277Publication Info
Shang, KH; Zhou, SX; & Van Houtum, GJ (2010). Improving supply chain performance: Real-time demand information and flexible deliveries.
Manufacturing and Service Operations Management, 12(3). pp. 430-448. 10.1287/msom.1090.0277. Retrieved from https://hdl.handle.net/10161/4431.This is constructed from limited available data and may be imprecise. To cite this
article, please review & use the official citation provided by the journal.
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Show full item recordScholars@Duke
Kevin H. Shang
Joseph J. Ruvane, Jr. Distinguished Professor
Kevin Shang is the Joseph J. Ruvane, Jr. Distinguished Professor of Operations Management
at the Fuqua School of Business, Duke University. Professor Shang received his M.B.A.
from University of California, Riverside in 1998 and Ph.D. from University of California,
Irvine in 2002. Professor Shang's expertise is in supply chain management and inventory
control. His research mainly focuses on developing simple and effective inventory
policies for supply chain systems.

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