The Stabilizing Effect of Inventory in Supply Chains

Manuel P. Baganha and Morris A. Cohen
Additional contact information
Manuel P. Baganha: Universidade Nova de Lisboa, Lisbon, Portugal
Morris A. Cohen: University of Pennsylvania, Philadelphia, Pennsylvania

Operations Research, 1998, vol. 46, issue 3-supplement-3, S72-S83

Abstract: This paper presents a hierarchical model framework for the analysis of the stabilizing effect of inventories in multiechelon manufacturing/distribution supply chains. This framework is used to compare the variance of demand to the variance of replenishment orders at different echelons of the system (e.g., retailer, wholesaler). Empirical data and experience with management games suggest that, in most industries, inventory management policies can have a destabilizing effect by increasing the volatility of demand as it passes up through the chain (the “bullwhip” effect). Our model helps to explain these observations and indicates mechanisms that can promote stabilization. The analysis results also define sufficient conditions for the existence of stabilization and relate these conditions to the optimality of myopic control policies.

Keywords: Multiechelon inventory systems; Inventory/production smoothing (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.46.3.S72 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:46:y:1998:i:3-supplement-3:p:s72-s83

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().