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Target setting under uncertainty

Author

Listed:
  • Rui Fernandes
  • Joaquim Borges Gouveia
  • Carlos Pinho

Abstract

The main goal of this study is the definition of a key performance indicator, able to measure the impact of the demand uncertainty in a multi-stage supply chain inventory level. Despite the traditional bullwhip effect being normally analysed considering the particular dimension of the demand volatility in the amplification of upstream orders, an endogenous effect can be found and measured using a new indicator, able to help managers understanding the demand uncertainty penetration in the different stages of a supply chain. With this metric, managers are able to establish a more reliable target for their stock level, in each node, according to the risk exposure, promoting the optimisation of the invested capital in an aggregated supply chain analysis. The mathematical model is supported on the real options methodology. Overall, our investigation increases the knowledge related with demand's uncertainty treatment in supply chain performance.

Suggested Citation

  • Rui Fernandes & Joaquim Borges Gouveia & Carlos Pinho, 2011. "Target setting under uncertainty," International Journal of Business Performance and Supply Chain Modelling, Inderscience Enterprises Ltd, vol. 3(4), pages 297-315.
    • Handle: RePEc:ids:ijbpsc:v:3:y:2011:i:4:p:297-315
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