A Generalized Order-Up-To Policy and Altruistic Behaviour in a Three-Level Supply Chain

Takamichi Hosoda and Stephen M. Disney

Chapter 11 in Supply Chain Management and Knowledge Management, 2009, pp 190-213 from Palgrave Macmillan

Abstract: Abstract An order coordination policy based on the order-up-to (OUT) policy that minimizes the total inventory costs for a three-level supply chain will be examined. For a single level of a supply chain, Vassian (1955) introduced an ordering policy with a work in progress (WIP) feedback loop and showed that this ordering policy minimizes the variance of the end of period net stock levels. In addition, Vassian showed that the minimized variance of the end-period net inventory level is identical to the variance of the error in the forecast of demand over the lead time plus review period. In this research, Vassian’s ordering policy is called as the traditional OUT policy.1 From Vassian’s seminal contribution, it is obvious that in a single-level supply chain case, the traditional OUT policy is an optimal policy for minimizing the variance of the end of period net stock levels over time. In a multi-level supply chain scenario, however, it might be reasonable to assume that a sequence of traditional OUT policies may not be optimal any more as there is no guarantee that a succession of local minimizations will result in a global optimum, as shown in Hosoda and Disney (2006a). Since the traditional OUT policy does not provide much freedom to manipulate the dynamics of the ordering process, Hosoda and Disney (2006a) have investigated a two-level supply chain using the traditional OUT policy modified to include a proportional controller.

Keywords: Supply Chain; Minimum Mean Square Error; Bullwhip Effect; Supply Chain Model; Proportional Controller (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:pal:palchp:978-0-230-23495-6_11

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230234956

DOI: 10.1057/9780230234956_11

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().