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The governing dynamics of supply chains: The impact of altruistic behaviour

Hosoda, Takamichi and Disney, Stephen Michael 2006. The governing dynamics of supply chains: The impact of altruistic behaviour. Automatica 42 (8) , pp. 1301-1309. 10.1016/j.automatica.2006.03.013

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This paper analyses an infinite horizon two-echelon supply chain inventory problem and shows that a sequence of the optimum ordering policies does not yield globally optimal solutions for the overall supply chain. First-order autoregressive demand pattern is assumed and each participant adopts the order-up-to (OUT) policy with a minimum mean square error forecasting scheme to generate replenishment orders. To control the dynamics of the supply chain, a proportional controller is incorporated into the OUT policy, which we call a generalised OUT policy. A two-echelon supply chain with this generalised OUT policy achieves over 10% inventory related cost reduction. To enjoy this cost saving, the attitude of first echelon player to cost increases is an essential factor. This attitude also reduces the bullwhip effect. An important insight revealed herein is that a significant amount of benefit comes from the player doing what is the best for the overall supply chain, rather than what is the best for local cost minimisation.

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 > HE Transportation and Communications
Uncontrolled Keywords: Multi-echelon inventory; Order-up-to policy; Collaboration; Inventory costs; Optimisation; Base-stock policy
Publisher: Elsevier
ISSN: 0005-1098
Last Modified: 10 Mar 2020 17:17

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