Altruistic behaviour in a two-echelon supply chain with unmatched proportional feedback controllers

Takamichi 2009. Altruistic behaviour in a two-echelon supply chain with unmatched proportional feedback controllers. Please note: Changes made as a result of publishing processes such as copy-editing, formatting and page numbers may not be reflected in this version. For the definitive version of this publication, please refer to the published source. You are advised to consult the publisher's version if you wish to cite this paper. The benefit of altruistic behaviour achieved by the order-up-to policy with unmatched proportional feedback controllers in a two-echelon supply chain " , Abstract We study a two echelon supply chain with first order autoregressive demand and unit replenishment lead-times. Each echelon of the supply chain uses conditional expectation to generate Minimum Mean Squared Error (MMSE) forecasts. Both echelons use these forecasts inside the " Order-Up-To " policy to generate replenishment orders. We investigate three different scenarios: The first is when each echelon aims to minimize their own local inventory holding and backlog costs. The second scenario is concerned with an altruistic retailer who is willing and able to sacrifice some of his own performance for the benefit of the total supply chain. The retailer does this by smoothing the demand placed on the manufacturer by using a matched proportional controller in the inventory and WIP feedback loops. The third scenario is concerned with an altruistic retailer with two, unmatched, controllers. The matched controller case out-performs the traditional case by 14.1%; the unmatched controller case outperforms the matched controller case by 4.9%. 1 INTRODUCTION There has been a growing interest in supply chains ever since Christopher (1998) argued that it is not individual companies but rather supply chains that compete against each other. Assuming the unit of competition is at the supply chain level creates a number of interesting challenges as actions in one part of the supply chain will have consequences in other parts of supply chain. This could be in a different company, a different industry, or even in another part of the world. Thus there is a need to understand how decisions taken by one member of the supply chain can affect other members of the supply chain. Collaboration in and coordination of, supply chains is therefore an important area of study.