| One of the most important issues affecting supply chains is the magnification of demand variability that occurs as orders move upstream in the supply chain from the retailer back to the manufacturer. This phenomenon, known as the Bullwhip Effect, leads to higher inventory costs, inefficient utilization of resources and excess capacity, and results in significant added costs to partners throughout the supply chain. Prior research has shown that information sharing, reducing lead times, or implementing scheduled ordering policies can reduce this variability. However, these approaches rely on a level of coordination among the partners of a supply chain that may not be possible or feasible in practice.; The research investigated in this dissertation develops an innovative approach to managing the Bullwhip Effect. By identifying customers with favorably correlated demand processes, firms can build a customer base with reduced order variability analogous to the way investors construct asset portfolios to minimize risk and achieve desired returns. We believe that this approach to bullwhip mitigation, called Demand Portfolio Management, is applicable in practice, and we present closed-form analytical results that show that it can provide significant reduction of order variability. To verify and extend our analytical results, we provide simulation results for a two-stage supply chain and illustrate their impact on supply chain costs and capacity utilization. |
