Abstract

Previous papers have presented the impact of various aspects, such as forecasting techniques, centralising information, and (s,S) ordering policy, on the variability of orders in a supply chain. In this paper we observe several properties of two traditional lot sizing rules, the Silver Meal (SM) and the least unit cost (LUC) on the variability of orders created by a supply chain channel receiving demand with stochastic variability from its downstream channel. Analytical models have been developed to compare the mean and variance of both order interval and order quantity produced by the two rules under relatively low demand variability. We show that, although the two rules appear to be very similar, they exhibit interestingly different behaviour. The SM rule is shown to produce a series of orders with more stable interval between orders but with more variable order quantities. Conversely, the LUC rule results in more stable order quantities but more variable order intervals. The study also reveals that addition of an appropriate amount of extra quantity to an order could significantly reduce order variability. With an increasing concern on the amplification of order variability in supply chains recently, the results provide interesting insights on the choice of lot sizing rules to be applied by a channel of a supply chain in determining ordering policies.

Original languageEnglish
Pages (from-to)617-635
Number of pages19
JournalEuropean Journal of Operational Research
Volume159
Issue number3
DOIs
Publication statusPublished - 16 Dec 2004

Keywords

  • Analytical models
  • Bullwhip effect
  • Lot sizing
  • Supply chain management

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