Coordinating of multi-echelon supply chains through the generalized (R, S) policy

Abstract

Numerous studies have confirmed the negative impact of the lack of coordination on supply chain performance. In particular, the lack of coordination leads to the bullwhip effect, which has severe impacts on supply chain stability. This paper evaluates a proposed coordination mechanism that allows a decentralized information sharing in multi-echelon supply chains. The proposed mechanism “Info-Smooth” utilizes the ordering rule of the generalized (R, S) policy in which a replenishment order can be transferred to upstream echelons including two pieces of information (demand forecast and inventory balance). As the generalized (R, S) can allow order smoothing, Info-Smooth combines the power of both information sharing and order smoothing. A simulation modeling methodology is employed to investigate the effectiveness of Info-Smooth in a multi-echelon supply chain. The factorial design results have shown that Info-Smooth is successful in mitigating the bullwhip effect whilst keeping acceptable inventory stability, compared to the traditional supply chain model.