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The value of coordination in a two-echelon supply chain

Disney, Stephen Michael, Lambrecht, Marc, Towill, Denis Royston and Van de Velde, Wim 2008. The value of coordination in a two-echelon supply chain. IIE Transactions 40 (3) , pp. 341-355. 10.1080/07408170701488003

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We study a coordination scheme in a two-echelon supply chain. It involves sharing details of replenishment rules, lead times, demand patterns and tuning the replenishment rules to exploit the supply chain's cost structure. We examine four different coordination strategies: naïve operation; local optimization; global optimization; and altruistic behavior on behalf of the retailer. We assume the retailer and the manufacturer use an order-up-to policy to determine replenishment orders and the consumer's demand is a stationary independent and identically distributed random variable. We derive the variance of the retailer's order rate and inventory levels and the variance of the manufacturer's order rate and inventory levels. We initially assume that costs in the supply chain are directly proportional to these variances (and later the standard deviations) and investigate the options available to the supply chain members for minimizing costs. Our results show that if the retailer takes responsibility for supply chain cost reduction and acts altruistically by dampening his or her order variability, then the performance enhancement is robust to both the actual costs in the supply chain and to a naïve or uncooperative manufacturer. Superior performance is achievable if firms coordinate their actions and if they can find ways to reallocate the supply chain gain.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Centre for Advanced Manufacturing Systems At Cardiff (CAMSAC)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HF Commerce
H Social Sciences > HF Commerce > HF5601 Accounting
Uncontrolled Keywords: Supply chains ; Bullwhip ; Inventory variance ; Local optimization ; Global optimization
Publisher: Taylor & Francis
ISSN: 0740-817X
Date of First Compliant Deposit: 30 March 2016
Last Modified: 10 Mar 2020 13:47

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