A nice piece of research on another approach to reducing the economic impact of imbalances between supply and demand in retail. The approach is a two-phase ordering policy. The ‘steady’ phase places EOQ-like regular orders to cover some base level of demand. The ‘balancing’ phase (my terms) orders extra in some periods, perhaps in a more expedited fashion, to handle the peaks and valleys of actual demand. It amounts to decomposing the demand stream into a steady part and a peak-and valley part, and matching the supply technique to the portion of demand in each ‘frequency’.
The expectation is that problems of promotions, outlet overstocks and shortages, and massive inventory-building on the part of consumers will be addressed at lower cost. The simulations seem to tell the students that the effect on cost will be positive!
It’s a unique approach, executed for a real business, and therefore rates a careful look. I hope it shows up in a published paper with a heuristic for deciding how to partition the demand forecast.
Here’s the article in SCMR where the news was posted.
Supply chain professionals are often confronted with the challenge of managing highly volatile customer shipments resulting from the bullwhip effect. This volatility leads to supply chain-wide inefficiencies, high operational complexity, low service levels and substantial costs.