Improving supply chain performance: Real-time demand information and flexible deliveries

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2010-06-01

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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.

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10.1287/msom.1090.0277

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Shang, KH, SX Zhou and GJ Van Houtum (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.

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Shang

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. Prof. Shang also conducts research in the interface of operations and finance and renewable energy systems.

Professor Shang's research has appeared in several leading management journals, including Management Science, Manufacturing and Service Operations Management, Operations Research. Several of his papers received research awards from professional societies. He has served as an editorial board member for several leading academic journals.


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