Analysis of decision making and information sharing strategies in a two-echelon supply chain

Abstract

The objective of this research is to study the interactions of deterministic and stochastic optimisation models in presence of information sharing in a supply chain with a varying level of error in demand forecast. In a two-echelon supply chain there are two different strategies, deterministic or stochastic, for supplier and manufacturer. All the four combinations (stochastic vs. deterministic for supplier and manufacturer) of the decision-making strategies in a two-echelon supply chain have been considered and the performance is evaluated. The results show that stochastic optimisation is efficient in lowering the operational costs and bull-whip effect in most cases. However, in cases where the trend in demand variation is smooth, using deterministic strategy by both stakeholders is beneficial if the demand forecast accuracy is more than 50%. If both stakeholders use stochastic strategy when the information accuracy is less than 50% coupled with more variation in demand, information sharing is not beneficial.