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Exploring nonlinear supply chains: The dynamic impact of capacity constraints

Ponte Blanco, Borja, Wang, Xun, de la Fuente, David and Disney, Stephen 2017. Exploring nonlinear supply chains: The dynamic impact of capacity constraints. International Journal of Production Research 55 (14) , pp. 4053-4067. 10.1080/00207543.2016.1245884

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Abstract

While most supply chain models assume linearity, real production and distribution systems often operate in constrained contexts. This article aims to analyse the consequences of capacity limits in the order-up-to replenishment policy with minimum mean squared error forecasting under independently and identically distributed random demand. Our study shows that the impact of this nonlinearity is often significant and should not be ignored. In this regard, we introduce the concept of a settling capacity, which informs when our knowledge from a linear analysis is a reasonable approximation in a nonlinear context. If the available capacity is less than the settling capacity, the nonlinear effects can have a significant impact. We compare the Bullwhip Effect and Fill Rate in constrained contexts to well-established results for linear supply chains. We reveal the capacity limit acts as a production smoothing mechanism, at the expense of increasing inventory variability. We proceed to analyse the economic consequences of the capacity constraint and show that it can actually reduce costs. We provide an approximate solution for determining the optimal capacity depending on the demand, the unit costs and the lead time.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Uncontrolled Keywords: bullwhip effect, capacity planning, fill rate, order-up-to policy, supply chain dynamics
Publisher: Taylor & Francis
ISSN: 0020-7543
Date of First Compliant Deposit: 8 May 2017
Date of Acceptance: 28 September 2016
Last Modified: 29 Jun 2019 16:21
URI: http://orca.cf.ac.uk/id/eprint/94986

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