Divergent Supply Chain Research Articles

Exact and heuristic algorithms for inventory rationing in a divergent supply chain with order costs

This paper addresses the development of an inventory control mechanism and inventory rationing policies in a static divergent two-stage supply chain consisting of one single distributor and several retailers. The unsatisfied demand is assumed to be backlogged at both distributor's and retailers' ends. In the case of shortage at distributor, the available stock on hand is rationed among the retailers. Most of the studies in the literature treat ordering costs as negligible and assume the review period to be one unit of time. However, if there is a significant cost associated with the order placement, then the review period can be greater than one time unit. Hence, in this study, we consider ordering costs for retailers, and present a mathematical programming model which can give optimal base-stock levels and review periods and inventory rationing (in the class of periodic review, order-up-to S policy). A genetic algorithm-based heuristic algorithm is also presented for solving problems with a large time horizon.

Optimal and heuristic base-stock levels and rationing policy for a divergent supply chain

A critical problem often faced by distribution centres that hold finished-good inventory is inventory rationing. A rationing problem arises when the available resources cannot satisfy all demand, indicating a shortage at the distribution centre. We consider a divergent two-stage supply chain with one distributor and four retailers. Retailers face external demand, and they in turn place the replenishment demand to the distributor. The unsatisfied demand is assumed to be backlogged at both distributor's and retailer's ends. Our study focuses on determining a rationing policy and base-stock levels (assuming order-up-to level policy), where the available stock at the distributor is rationed among the successors (i.e. retailers) in case of shortage, with the objective of minimising total holding and backlog costs in the supply chain. We present a mathematical programming model, which can give optimal solutions in the class of base-stock policy, and a genetic algorithm-based heuristic methodology for determining the base-stock levels and rationing fractions.

Service performance of two-echelon supply chains under linear rationing

Consideration is given to the operation of simple two-echelon divergent supply chains, where one central stock-point feeds several end stock-points. Periodic review echelon order-up-to policies are used to control the chain. Customer demand is imposed at end stock-points and, if unsatisfied, is backordered. In the event of central stock-point shortages, available material has to be rationed. We study a class of practical rationing rules, known as linear rationing (LR), which distributes shortage to end stock-points according to fixed fractions. After developing an alternative definition for the LR class rationing function, we formally show that popular rules, such as fair share (FS) and consistent appropriate share (CAS), belong to the LR class. We also propose a new LR rule that directly extends FS scope and applicability. For normal demand processes, we then develop closed-form customer service models, applicable to any LR rule. Modeling accuracy critically depends on the satisfaction of the standard balance assumption. Using a distribution-free model for a surrogate measure of the balance probability, we discuss the expected balance behavior of LR rules. Monte Carlo simulations reveal the balance assumption to be robust, at least for normally distributed demands, under fairly general conditions. Finally, numerical comparisons of the new LR rule with an existing one show encouraging results for the new rule.

Controlling Inventories in Divergent Supply Chains with Advance-Order Information

This paper considers a generic one-warehouse multiple-retailer inventory system under continuous review, where customers provide perfect advance-order information. More specifically, each customer order entails a due date specifying when the customer wants the item delivered. The information is perfect in the sense that a placed order cannot be revised. With the intent of using the advance-order information fully throughout the supply chain, each installation replenishes its stock using order base-stock policies (see Hariharan and Zipkin 1995). As for stock allocation, the presence of advance-order information at the central warehouse raises important questions regarding when reservations should be made for different retailers, i.e., how to make best use of the available temporal information to allocate items to retailers. Exact and approximate cost evaluation techniques are presented for the general case, the general reservation policy, as well as for the two special cases of reserving as early as possible, the complete reservation policy, and as late as possible, the last-minute allocation policy. A numerical study illustrates the performance of the proposed heuristics and provides insights on the value of using advance-order information in supply chain inventory control.

Impact of information sharing on inventory replenishment in divergent supply chains

This research investigates the impact of different levels of sharing information on inventory replenishment of enterprises in three-stage distribution supply chains of the divergent type. This paper has two objectives: (1) to investigate the effects of different levels of information sharing on operating cost, inventory level and backlog level of retailers, distributors, manufacturer and the entire supply chain; and (2) to study which level of information sharing is most beneficial or optimal to each type of enterprise. The entire supply chain under various supply chain scenarios characterized by several parameters including demand variance, lead times, capacity and order batch size is investigated. The impact of sharing information is evaluated in terms of several performance indicators through a multi-agent-based simulation model. The results of the experimental simulation show that no single level of information sharing dominates the others from the perspective of individual enterprises. Some insights are provided for managers who want to implement information sharing.

Multi-echelon multi-company inventory planning with limited information exchange

Supply chain planning concepts from multi-echelon inventory theory are generally based on some form of centralised planning of supply chains. Those multi-echelon models that do consider decentralised planning, assume complete information and/or a specific single objective function. This paper investigates how multi-echelon inventory theory can accommodate a setting with decentralised decision makers (a supplier and a number of retail groups) without complete information. We present a coordination procedure that does not require the retail groups to exchange demand information, but does allow using opportunities for demand pooling between them. We illustrate our ideas by way of a quantitative analysis of a two-echelon divergent supply chain, with both cooperative and non cooperative retail groups. We conclude that coordination across a supply chain with decentralised control and limited centralised information is feasible by using available algorithms with satisfactory service level and cost performance.

The Impact of Information Sharing on Order Fulfillment in Divergent Differentiation Supply Chains

Current information technology (IT), such as extended intranets (extranets) utilizing the components of the World Wide Web (WWW), makes information sharing between global supply chain partners feasible. Given this, an important issue is: What impact does efficient information sharing have on supply chain order fulfillment performance (specifically cycle time and inventory costs)? In this study, we focus on divergent differentiation supply chains (commonly associated with industries such as fashion apparel). We identify the impact of information sharing by simulating order fulfillment in this supply chain type and find inventory costs can be reduced while maintaining acceptable order fulfillment cycle times. This is true because information, which provides the basis for enhanced coordination and reduced uncertainty, can substitute for inventory.