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The order-up-to policy "sweet spot": using proportional controllers to eliminate the bullwhip problem

Chen, Y. F. and Disney, Stephen Michael 2003. The order-up-to policy "sweet spot": using proportional controllers to eliminate the bullwhip problem. Presented at: EUROMA POMS Conference, Lake Como, Italy, 16-18 June 2003. Published in: Spina, G. ed. One world? One view of OM?: the challenges of integrating research & practice. Padova: Servizi Grafici Editoriali, pp. 551-560.

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We develop a discrete control theory model of a stochastic demand pattern with both Auto Regressive and Moving Average (ARMA) components. We show that the bullwhip effect arises when the myopic Order-Up-To (OUT) policy is used. This policy is optimal when the ordering cost is linear. We then derive a set of z-transform transfer functions of a modified policy that allows us to avoid the bullwhip problem by incorporating a proportional controller into the inventory position feedback loop. With this technique, the order variation can be reduced to the same level as the demand variation. However, bullwhip-effect avoidance in our policy always comes at the costs of holding extra inventory. When the ordering cost is piece -wise linear and increasing, we compare the total cost per period under the two types of ordering policies: with and without bullwhip - effect reduction. Numerical examples reveal that the cost saving can be substantial if order variance is reduced using the proportional controller.

Item Type: Conference or Workshop Item (Paper)
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 > HD28 Management. Industrial Management
Uncontrolled Keywords: Bullwhip effect, Inventory, Order-Up-To policy, Control theory
Publisher: Servizi Grafici Editoriali
ISBN: 9788886281782
Related URLs:
Last Modified: 03 Mar 2020 02:36

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