Improving Supply Chain Performance by
Imposing Restrictions and
Using Information Flows1
Srinagesh
Gavirneni
Existing
research on information flows in supply chains has mainly focused on
incorporating information sharing within the existing supply chain setup. We
have lately observed that in order for a supply chain to maximize the benefits
associated with information flows, it is necessary to change its structure
and/or modus operandi. We illustrate this point using a two-stage serial supply
chain in which the retailer is facing stochastic i.i.d.
end-customer demands. We propose a
strategy in which the supplier restricts that the retailer may place a variable
order only once in every m periods. In the other m-1 periods the retailer is
required to receive a predetermined quantity and provide the supplier with
information on the current inventory level. After establishing the structure of
optimal policies and developing appropriate solution procedures, we perform a
detailed computational study. The benefits of this strategy averaged around 7%
with a maximum of 22%. The proposed strategy is most promising when the
supplier penalty cost is high, retailer penalty cost is low, end-customer
demand variance is moderate, and supplier has ample capacity.
1This work was done jointly with Wanshan Zhu and Roman Kapuscinski.