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Some Properties of Decentralized Supply Chains

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  • Ouyang, Yanfeng
  • Daganzo, Carlos F.

Abstract

This paper analyzes the bullwhip effect in decentralized, linear and time-invariant (LTI) supply chains. It generalizes existing results by broadening the class of policies and customer demand processes under consideration. The supply chain is modeled as a single-input, singleoutput control system driven by arbitrary demands. The paper discusses the appropriateness of various metrics for the bullwhip effect, and derives analytical conditions to predict its presence independently of the demand process. The paper also gives a formula for the variance of the order stream at any stage when the demand process is known and ergodic. Advance demand information (ADI) is shown to mitigate the bullwhip effect for general ordering policies.

Suggested Citation

  • Ouyang, Yanfeng & Daganzo, Carlos F., 2005. "Some Properties of Decentralized Supply Chains," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt5qt7g4tv, Institute of Transportation Studies, UC Berkeley.
    • Handle: RePEc:cdl:itsrrp:qt5qt7g4tv
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    References listed on IDEAS

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    1. Ramey, Valerie A, 1991. "Nonconvex Costs and the Behavior of Inventories," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 306-334, April.
    2. Sterman, John D., 1989. "Misperceptions of feedback in dynamic decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 43(3), pages 301-335, June.
    3. Alan S. Blinder, 1986. "Can the Production Smoothing Model of Inventory Behavior be Saved?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 431-453.
    4. Naish, Howard F, 1994. "Production Smoothing in the Linear Quadratic Inventory Model," Economic Journal, Royal Economic Society, vol. 104(425), pages 864-875, July.
    5. Carlos F. Daganzo, 2004. "On the Stability of Supply Chains," Operations Research, INFORMS, vol. 52(6), pages 909-921, December.
    6. So, Kut C. & Zheng, Xiaona, 2003. "Impact of supplier's lead time and forecast demand updating on retailer's order quantity variability in a two-level supply chain," International Journal of Production Economics, Elsevier, vol. 86(2), pages 169-179, November.
    7. Dejonckheere, J. & Disney, S. M. & Lambrecht, M. R. & Towill, D. R., 2003. "Measuring and avoiding the bullwhip effect: A control theoretic approach," European Journal of Operational Research, Elsevier, vol. 147(3), pages 567-590, June.
    8. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-679, September.
    9. Rema Hariharan & Paul Zipkin, 1995. "Customer-Order Information, Leadtimes, and Inventories," Management Science, INFORMS, vol. 41(10), pages 1599-1607, October.
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    Cited by:

    1. Ouyang, Yanfeng & Daganzo, Carlos, 2005. "Counteracting the Bullwhip Effect with Decentralized Negotiations and Advance Demand Information," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt0489z4qg, Institute of Transportation Studies, UC Berkeley.
    2. Laumanns, Marco & Lefeber, Erjen, 2006. "Robust optimal control of material flows in demand-driven supply networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 363(1), pages 24-31.
    3. Ouyang, Yanfeng & Daganzo, Carlos, 2006. "Counteracting the bullwhip effect with decentralized negotiations and advance demand information," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 363(1), pages 14-23.

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