Increase In Demand Variability Research Articles

Analytics with stochastic optimisation: experimental results of demand uncertainty in process industries

This study reports the test results of a two-stage stochastic linear programming (SLP) model with recourse using a user-friendly generic decision support system (DSS) in a North American steel company. This model has the flexibility to configure multiple material facilities, activities and storage areas in a multi-period and multi-scenario environment. The value of stochastic solution (VSS) with a real-world example has a potential benefit of US$ 24.61 million. Experiments were designed according to the potential joint probability distribution scenarios and the magnitude of demand variability. Overall, 144 SLP optimisation model instances were solved across four industries, namely, steel, aluminium, polymer and pharmaceuticals. The academic contribution of this research is two-fold: first, the potential contribution to profit in a steel company using an SLP model; and second, the optimisation empirical experiments confirm a pattern that the VSS and expected value of perfect information (EVPI) increase with the increase in demand variability. This study has implications for practicing managers seeking business solutions with prescriptive analytics using stochastic optimisation-based DSS. This study will attract more industry attention to business solutions, and the prescriptive analytics discipline will garner more scholarly and industry attention.

An optimisation and simulation hybrid approach for maternal healthcare facility location-allocation in the Indian context

This paper addresses availability and accessibility issues related to maternal healthcare facilities, basic healthcare to neonatal services, prevailing in India. These issues are resolved on economic considerations in establishing and running healthcare facilities and the expenses on travel incurred by mothers-to-be (MTBs) in visiting them. This problem is formulated as a mixed-integer linear programming model for determining optimal number and locations of the healthcare facilities within the specified geographical boundary. The formulation also decides optimal allocation of MTBs to these centres that are available within a reasonable distance. Service demand of MTBs was considered to be deterministic. In reality, the demand, being random, may be high to cause healthcare service quality negatively. Hybrid optimisation and simulation approach shows that the service quality deteriorates with the increase in demand variability or its mean value. This information is useful in deciding additional number of the service facilities to provide satisfactory service quality.

An Interaction Investigation of the Contributing Factors of the Bullwhip Effect Using a Bi-Level Social Network Analysis Approach

The bullwhip effect refers to the phenomenon of the increase in demand variability from supply chain downstream members to upstream members. This effect is critically important for the different sectors involved in a supply chain and is one of the main causes of inefficiency, material waste, and low sustainability in supply chain management. In order to help minimize the bullwhip effect and achieve sustainable development in a supply chain, this study identifies the influential factors of the bullwhip effect in a supply chain and the interactive relationships among them. A bi-level bullwhip effect analysis model was established to evaluate the causes of the bullwhip effect at different levels by using a social network analysis approach. Furthermore, to help achieve efficient and sustainable development, the implications of mitigating the impacts of the bullwhip effect in a supply chain were explored based on the results of the inter-relationships analysis among the contributing factors of the bullwhip effect.

An Optimization and Simulation Hybrid Approach for Maternal Healthcare Facility Location-Allocation in the Indian Context

This paper addresses availability and accessibility issues related to maternal healthcare facilities, basic healthcare to neonatal services, prevailing in India. These issues are resolved on economic considerations in establishing and running healthcare facilities and the expenses on travel incurred by mothers-to-be (MTBs) in visiting them. This problem is formulated as a mixed-integer linear programming model for determining optimal number and locations of the healthcare facilities within the specified geographical boundary. The formulation also decides optimal allocation of MTBs to these centres that are available within a reasonable distance. Service demand of MTBs was considered to be deterministic. In reality, the demand, being random, may be high to cause healthcare service quality negatively. Hybrid optimisation and simulation approach shows that the service quality deteriorates with the increase in demand variability or its mean value. This information is useful in deciding additional number of the service facilities to provide satisfactory service quality.

Variability in commercial demand for tree saplings affects the probability of introducing exotic forest diseases.

Several devastating forest pathogens are suspected or known to have entered the UK through imported planting material. The nursery industry is a key business of the tree trade network. Variability in demand for trees makes it difficult for nursery owners to predict how many trees to produce in their nursery. When in any given year, the demand for trees is larger than the production, nursery owners buy trees from foreign sources to match market demand. These imports may introduce exotic diseases.We have developed a model of the dynamics of plant production linked to an economic model. We have used this to quantify the effect of demand variability on the risk of introducing an exotic disease.We find that: (a) When the cost of producing a tree in a UK nursery is considerably smaller than the cost of importing a tree (in the example presented, less than half the importing cost), the risk of introducing an exotic disease is hardly affected by an increase in demand variability. (b) When the cost of producing a tree in the nursery is smaller than, but not very different from the cost of importing a tree, the risk of importing exotic diseases increases with increasing demand variability. Synthesis and applications. Our model and results demonstrate how a balanced management of demand variability and costs can reduce the risk of importing an exotic forest disease according to the management strategy adopted. For example, a management strategy that can reduce the demand variability, the ratio of production to import cost or both, optimizes the nursery gross margin when mainly own‐produced trees are commercialized. This can also translate into a reduction of the risk of introducing exotic forest diseases due to the small number of imported trees for sale.

Services outsourcing under asymmetric cost information

In this paper, we investigate the impact of cost heterogeneity on the optimal sourcing strategy of a client firm that outsources her service requirements to a set of outside vendors/service providers. We analyze a typical situation involving service providers, who differ from one another with respect to the marginal cost and characterize the firm’s optimal size of vendor network. In our model, the client firm does not have complete information about the vendors’ cost structure.From the client firm’s perspective, for the case when the open market demand distribution is Uniform and the buyer’s demand is Normally distributed, we analytically derive the capacity to be procured as well as and the optimal number of vendors to be awarded the contract. Our analysis reveals that with an increase in vendor base cost heterogeneity, the optimum number of required vendors decreases. We further conclude that when the mean demand of the client firm is below a threshold value, then as the client firm’s demand variability increases, the optimal number of vendors increases. Whereas, in case the client firm’s mean demand is above the threshold value, then the optimal size of vendor base decreases as the client firm’s demand variability increases.

Vertically integrated producer when a rival is also a customer: impact of demand uncertainty

ABSTRACTWhen a vertically integrated producer (VIP) is also a supplier of a component for its rival firm, it was found that the profit in a decentralized structure is higher for the VIP than the profit in a centralized structure under deterministic demand. In contrast, we found that firms’ ordering decisions under uncertain demand can reverse this findings and it is more likely to happen as demand variability increases.

Factors affecting a perishable supply chain's transaction costs and service

A discrete event simulation study is used to investigate the effect of supply variability, demand variability, targeted cycle service level, supply flexibility factor, number of suppliers, and retailer-to-supplier ratio on average transaction cost and observed cycle service level in a two-tiered supply chain with multiple suppliers and multiple retailers. Our findings indicate that transaction cost decreases as demand variability increases or as targeted cycle service level increases. Transaction cost increases as supply variability increases. Observed cycle service level and average transaction cost are not significantly affected by number of suppliers and retailer-to-supplier ratio. Observed customer service level gets worse when supply or demand variability increases, and it improves when supply becomes more available.

A service oriented manufacturing grid system with uncertain information

Purpose – The increase in demand variability created by manufacturing enterprises presents new challenges for increasing resource usage and sharing flexibility. For this reason, it is of great importance to research manufacturing grids and their service modes. The purpose of this paper is to establish a systematic strategy and a system tool for manufacturing grid systems. Design/methodology/approach – A manufacturing service oriented manufacturing grid (MSoMG) system is presented with open grid service architecture as the system architecture and GT3.9 as a development tool. A framework is proposed to support MSoMG by providing advisory tools and methods for uncertain information analysis and processing, multi-objective decision making of manufacturing grid service execution, manufacturing grid service performance prediction based on knowledge template, and flexible manufacturing grid service scheduling and solution. The methodology of the adopted rough set is discussed in detail. Finally, the design support strategies for MSoMG are investigated to guide the coordination of manufacturing activities. Findings – Many conventional methods and models become very limited for manufacturing grid service with uncertain information. The processing of uncertain information and reasonable application flow can help to improve the completion rate and reliability of manufacturing grid services. Practical implications – This research provides a solid foundation for manufacturing gird operations and can promote the use of a manufacturing grid mode. Originality/value – A MSoMG system is presented. The manufacturing grid service with uncertain information is considered as well as design support strategies.

Selling to Conspicuous Consumers: Pricing, Production, and Sourcing Decisions

Consumers often purchase goods that are “hard to find” to conspicuously display their exclusivity and social status. Firms that produce such conspicuously consumed goods such as designer apparel, fashion goods, jewelry, etc., often face challenges in making optimal pricing and production decisions. Such firms are confronted with precipitous trade-off between high sales volume and high margins, because of the highly uncertain market demand, strategic consumer behavior, and the display of conspicuous consumption. In this paper, we propose a model that addresses pricing and production decisions for a firm, using the rational expectations framework. We show that, in equilibrium, firms may offer high availability of goods despite the presence of conspicuous consumption. We show that scarcity strategies are harder to adopt as demand variability increases, and we provide conditions under which scarcity strategies could be successfully adopted to improve profits. Finally, to credibly commit to scarcity strategy, we show that firms can adopt sourcing strategies, such as sourcing from an expensive production location/supplier or using expensive raw materials. This paper was accepted by Preyas Desai and Pradeep Chintagunta, marketing.

Modelagem matemática do efeito chicote em ambientes com demanda e lead time estocásticos

O aumento da variabilidade da demanda ao longo de uma cadeia de abastecimento é conhecido como Efeito Chicote (EC). A modelagem deste fenômeno é fundamental para a quantificação de sua intensidade, ajudando a reduzir seus impactos negativos sobre o nível de serviço e sobre os estoques em cadeias de abastecimento. Este artigo apresenta uma proposta de modelagem do EC que tem por objetivo aumentar a precisão na quantificação deste fenômeno em ambientes com demanda e lead time estocásticos. O novo modelo considera um elemento que não está presente nos principais modelos disponíveis na literatura: a variabilidade no lead time de entrega de pedidos. Além disso, define de modo mais preciso o papel do coeficiente de variação da demanda na quantificação do EC. A utilização do modelo proposto aumenta a eficiência da gestão de cadeias de abastecimento ao contribuir para atenuar a propagação do EC.

The Effects of Sharing Upstream Information on Product Rollover

The process of introducing new and phasing out old products is called product rollover. This paper considers a periodic‐review inventory system consisting of a manufacturer and a retailer, where the manufacturer introduces new and improved products over an infinite planning horizon using the solo‐roll strategy. We consider two scenarios: (1) the manufacturer does not share the upstream information about new‐product introduction with the retailer and (2) the manufacturer shares the information. For each scenario, we first derive the decentralized ordering policy and the system‐optimal ordering policy with given cost parameters. We then devise an optimal supply chain contract that coordinates the inventory system. We demonstrate that when the inventory system is coordinated, information sharing improves the performance of both supply chain entities. However, this may not be true if the inventory system is not coordinated. We also show that under the optimal contract, the manufacturer has no incentive to mislead the retailer about new‐product information in the information‐sharing model. When demand variability increases, information sharing adds more benefits to the coordinated supply chain. Our research provides insights about coordinating product, financial, and information flows in supply chains with product rollover.

Analysis of the impact of price-sensitivity factors on the returns policy in coordinating supply chain

This paper analyzes the impact of price-sensitivity factors on characteristics of returns policy contracts in a single-period product supply chain. The contract considers stochastic and price-dependent demand. We present an analytical model and then use numerical methods with the Stackelberg game to identify the contract properties. We numerically show that a returns policy indeed improves supply chain performance. However, the benefits earned from the returns policy, under price-sensitive and variable demand, are different for different supply chain partners. First, when price-sensitivity is high, profit of the manufacturer decreases with increase in demand variability. Second, when price-sensitivity is sufficiently high and demand variability increases, the manufacturer has to surrender part of the profits to the retailer, in order to continue sales. However, even after surrendering part of the profits to the retailer, the manufacturer still earns profits that are higher than those available in a wholesale price contract. Last, from the perspective of division of channel profits, the retailer is always worse off in case of returns policies than in a wholesale price contract. Therefore, to apply this form of incentive in practice, managements should consider the impact of price-sensitivity on the returns policy and its performance.

Evaluation of hierarchical forecasting for substitutable products

This paper addresses hierarchical forecasting in a production planning environment. Specifically, we examine the relative effectiveness of Top-Down (TD) and Bottom-Up (BU) strategies for forecasting the demand for a substitutable product (which belongs to a family) as well as the demand for the product family under different types of family demand processes. Through a simulation study, it is revealed that the TD strategy consistently outperforms the BU strategy for forecasting product family demand. The relative superiority of the TD strategy further improves by as much as 52% as the product demand variability increases and the degree of substitutability between the products decreases. This phenomenon, however, is not always true for forecasting the demand for the products within the family. In this case, it is found that there are a few situations wherein the BU strategy marginally outperforms the TD strategy, especially when the product demand variability is high and the degree of product substitutability is low.

On the effect of demand randomness on a price/quantity setting firm

Replenishment and pricing decisions are of great importance to firms. Traditionally replenishment and pricing strategies are determined by separate units of a firm, the former by production and the latter by marketing. In determining these two strategies, firms frequently have to face two challenges. One stems from a lack of coordination between production and marketing, which leads to revenue loss or excess inventory. The other is caused by lack of information when making these two decisions. That is, firms usually have to make decisions when market information is poor. We consider the joint effects of coordination and information when market demand becomes more variable in the sense of a specific mean preserving transformation. We have three main findings. First, when these two strategies are coordinated by the Headquarters (HQ) of the firm, the HQ uses pricing and inventory as two instruments to manage uncertainty. How exactly increasing demand variability affects the decisions depends on the type of demand uncertainty faced. In particular, for additive demand uncertainty, both price and service level decrease in demand variability, whereas for multiplicative demand uncertainty, they both increase in demand variability. Second, the value of information increases with the level of demand variability, suggesting that it is more beneficial to have information when demand is more variable. The impact of demand variability on the value of coordination, however, is indeterminate. Furthermore, perfect information has more value than perfect coordination if and only if demand variability is high. Third, coordinating these two decisions reduces the value of obtaining the demand information and similarly coordination is more valuable when the demand information is unavailable than otherwise.

Periodic reconfiguration of general-purpose fixtures in a dedicated FMS

Fixtures dedicated to a given part type in an FMS can sometimes become bottlenecks to some FMSs as demand variability increases. Past research indicates that the increased operating flexibility associated with general-purpose fixtures may be a key to the efficient scheduling of even those FMSs dedicated to producing a small number of part types over a known planning horizon. However, the increased time required to reconfigure general-purpose fixtures to meet current demand may also create a bottleneck in the loading area. Increases in the defect rate associated with improper fixture assembly and part alignment are also possible. One solution may be to reconfigure general-purpose fixtures off line according to specific demand schedules for the period, and then to treat them as “pseudo-dedicated” fixtures until the next period. This would utilize some of the flexibility associated with general-purpose fixtures, while reducing the negative drawbacks associated with incremental loading time and alignment errors.

Cost Flexibility and Price Dispersion

This paper examines the relationship between a firm's cost flexibility and product price dispersion. We show that a mean preserving increase in demand variability need not lead to an increase in the value of flexibility or in the optimal level of This is contrary to results in the literature which are achieved by assuming a quadratic cost curve. IN A pioneering paper, Stigler [1939] considered a firm's choice of plant flexibility. He argued that if firms face exogenous demand fluctuations, then it can be worthwhile to select a more plant, one which permits higher profit in a wide range of possible demand states at the cost of lower profit in other demand states.' Stigler suggested that the desirability of a more flexible plant increases as price variability increases. Marschak and Nelson [1962] explored this conjecture. They showed that an increase in the variance of price causes expected profit from a more flexible plant to rise relative to expected profit from a less flexible plant. More recently, Mills [1984] considered long run equilibrium in a competitive industry subject to fluctuating demand when firms can select a level of He showed that the optimal level of flexibility increases as the variance of demand increases. The results of Marschak and Nelson and Mills, however, are based on the strong assumption that the cost function is quadratic, an assumption which is known to be restrictive in the analysis of decision making under uncertainty. In this paper we generalize the analysis of cost flexibility in two ways. First, we adopt the Rothschild-Stiglitz [1970] definition of increased price variability and show that the results of Marschak and Nelson and of Mills continue to hold for a quadratic cost function. Second, we relax the assumption that cost is a quadratic function of output and show that the results in the existing literature are crucially dependent on this assumption. After formulating the model, we consider the effect of an increase in price dispersion on the value of flexibility, defined as willingness to pay. Then we examine the effect of increased price variability on the optimal level of Finally, we consider the impact of an increase in demand variability on the equilibrium in a competitive industry. In all cases we find that the results in the literature continue to hold for a general mean preserving