The Impact of E-Replenishment Strategy on Make-to-Order Supply Chain Performance

This research investigates the impact of electronic replenishment strategy on the operational activities and performance of a two-stage make-to-order supply chain. We develop simulation-based rolling schedule procedures that link the replenishment processes of the channel members and apply them in an experimental analysis to study manual, semi-automated, and fully automated e-replenishment strategies in decentralized and coordinated decision-making supply chain structures. The average operational cost reductions for moving from a manual-based system to a fully automated system are 19.6, 29.5, and 12.5%, respectively, for traditional decentralized, decentralized with information sharing, and coordinated supply chain structures. The savings are neither equally distributed among participants, nor consistent across supply chain structures. As expected, for the fully coordinated system, total costs monotonically decrease with higher levels of automation. However, for the two decentralized structures, under which most firms operate today, counter-intuitive findings reveal that the unilateral application of e-procurement technology by the buyer may lower his purchasing costs, but increase the seller’s and system’s costs. The exact nature of the relationship is determined by the channel’s operational flexibility. Broader results indicate that while the potential economic benefit of e-replenishment in a decentralized system is substantial, greater operational improvements maybe possible through supply chain coordination. Subject Areas: E-Business, MIS/OM Interface, Purchasing, and Supply Chain Management.