1. A Nearly Optimal Order Policy to Reduce Bullwhip Effect
- Author
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Kwok-Leung Tsui, Hancong Liu, and Fugee Tsung
- Subjects
Information Systems and Management ,Inventory investment ,Supply chain ,Variance (accounting) ,Management Science and Operations Research ,Microeconomics ,Order (exchange) ,Management of Technology and Innovation ,Engineering process control ,Bullwhip effect ,Industrial relations ,Economics ,Econometrics ,Revenue ,Business and International Management ,Distortion (economics) - Abstract
An important supply chain research problem is the bullwhip effect caused by information distortion and variation amplification along a supply chain, which can lead to tremendous inefficiencies, such as excessive inventory investment and lost revenues. Motivated by engineering process control methods, this paper proposes a class of order-up-to policies and develops a nearly optimal policy to reduce the bullwhip effect. The proposed policy can significantly reduce the order variance while keeping the expected cost nearly optimal. According to our numerical studies, the order variance of the nearly optimal policy can be reduced by more than 50% while the expected cost is only slightly greater than that of the optimal policy derived in Lee et al. [12].
- Published
- 2005