Impact of supplier's lead time and forecast demand updating on retailer's order quantity variability in a two-level supply chain

Abstract

Motivated by the dramatic boom-and-bust cycles in semiconductor industry, we use an analytical model to analyze two important factors that can contribute to the high degree of order quantity variability experienced by semiconductor manufacturers: supplier's lead time and forecast demand updating. Specifically, we use a two-level supply chain model to study how the supplier's variable delivery lead times and the correlation of the external demands can amplify the variability of the order quantities of the downstream member in the supply chain. Based on our analytical and numerical results, some useful insights are used for managing supplier's lead time performance in order to reduce order quantity variability in a supply chain. For instance, our results suggest that in allocating scarce capacity by the supplier, higher priority should be given to those products whose demands are highly variable and correlated for maintaining consistent delivery lead times for these products.