Inventory control with a modified Croston procedure and Erlang distribution

This paper considers an inventory control system, primarily for a finished goods inventory. The purpose is to create a procedure that can handle both fast-moving items with regular demand and slow-moving items. The suggested procedure should be easy to implement in a modern computerized ERP-system. Essentially, the system is a periodic review system built around a Croston forecasting procedure. An Erlang distribution is fitted to the observed data using the mean and variance of the forecasted demand rate. According to probabilities for stock shortages, derived from the probability distribution, the system decides if it is time to place a new order or not. The Croston forecasting method is theoretically more accurate than ordinary exponential smoothing for slow-moving items. However, it is not evident that a Croston forecasting procedure (with assumed Erlang distribution) outperforms ordinary exponential smoothing (with assumed normal distribution) applied in a “practical” inventory control system with varying demand, automatically generated replenishment, etc. Our simulation study shows that the system in focus will present fewer shortages at lower inventory levels than a system based on exponential smoothing and the normal distribution.     

Order and inventory variance amplification: The equivalence of discrete and continuous time analyses

The well-known “Bullwhip Effect” concerns the increasing variance of orders as they proceed through the supply chain. In the continuous time representation we solve the delay-differential equation for the inventory balance, which is coupled to the ordering policy. The time domain evolution of the system emerges. We calculate the Bullwhip Effect and compare it to known results for the discrete time representation. The discrete and continuous Bullwhip Effect expressions have similar structures. We show that the two domains are managerially equivalent so that in practice either domain can be used to study a supply chain.     

Determination of an order-up-to policy in the stochastic economic lot scheduling model

We consider a production–inventory problem with compound renewal item demand. The model consists of stockpoints, one for each item, controlled according to (R,S)-policies and one machine which replenishes them. The replenishment orders are produced with a fixed rate on the machine with significant setup times and costs, which are stochastic and sequence dependent. The time between the release and the production of the replenishment order is called the waiting time. We develop analytical approximations for the first two moments of this waiting time, the order-up-to levels and the average physical inventory levels for all stockpoints, given the target fill rates. These analytical approximations allows for a quick evaluation of the waiting time which is important when optimization of the system is considered.     

A holistic network model for supply chain analysis

Supply chain researchers are experiencing a conceptual and analytical paradox. They are asked to move beyond dyadic analyses and investigate larger network effects with only a limited analytical toolkit. This research proposes the use of bilinear mixed-modeling to holistically analyze supply chain phenomena. Through this approach, researchers are able to account for multiple supply chain relationships, higher-order dependencies among member firms, and simultaneously evaluate covariates from buyer and seller perspectives. The model is validated through the lens of a pervasive supply chain problem commonly referred to as the bullwhip effect. A sample of firms from the US apparel industry in 2004 is analyzed and then the findings are confirmed using data from 2005. In addition to validating the model through the presence of the bullwhip effect, the bilinear model illuminates variables such as advertising, price deals, inventory turnover, and inventory backlogs that exacerbate or diminish inventory differences between firms in a supply chain. The results extend research on supply networks and supply efficiency to a more holistic level and show that higher-order dependencies are important drivers of supply chain phenomena.     

Viewpoint: “Customized competitiveness” strategies for horticultural exporters – Central America focus with lessons from and for other regions

This paper presents the idea of “customized competitiveness” as a strategy necessary for overall competitiveness in particular in globalized horticulture markets and in the “second round” of globalization that started in the mid/late 1990s. Customized competitiveness is additional and complementary to basic “structural competitiveness” that is the focus of competitiveness debates today and for the past decade. The paper illustrates the need for this new strategy, using the example of Central America, highlighting the severe challenges (similar to those facing other developing regions) it faces in the second round of globalization of horticulture markets, magnified by market liberalization culminating recently in implementation of CAFTA. The paper then illustrates “solutions” by providing examples of cutting-edge programs in various developing countries of de facto “customized competitiveness” in the form of public–private partnerships and the provision of public and semi-public goods, to help their exporters access and succeed in the new markets. We conclude with policy implications for Central America and other developing regions.     

Implications of regulation for entry and investment in the local loop

A number of countries around the world are trying to promote competition at the local loop as demand for higher bandwidth to the home increases. Different technologies (xDSL, cable modems, and wireless local loop) offer alternative solutions and the issue for regulators is to design a framework that promotes competition and investment. Regulators can promote competition in a number of ways, but two “pure” strategies are services and infrastructure competition. This paper models the regulator and incumbent–entrant interactions explicitly in order to understand how the structure of the voice services might evolve under different regulatory frameworks. Our analysis suggests that a “mix” of infrastructure and service competition like the one promoted in Netherlands, stimulates investment by incumbents and entrants alike and offers better consumer benefits. The message for policy makers is that the introduction of “sunset clauses” provides new entrants with strong incentives to invest while allowing them to enter in service competition and to acquire important knowledge about their new market.     

Design of a novel adaptive inventory control system based on the online identification of lead time

In this paper, an adaptation method for the online identification of lead time is incorporated in production–inventory control systems. Based on the lead time estimate, the tuning parameters are updated in real time to improve the efficiency of the system. Combination of the adaptive scheme with a proportional control law is able to eliminate the inventory drift that appears when the actual lead time is not known in advance or when it varies with time. A detailed analysis is provided for the proposed production–inventory system, including a stability analysis and the quantification of its bullwhip effect. Several examples and comparison with state-of-the-art alternative approaches illustrate the efficiency of the system.     

Expropriation and control rights: A dynamic model of foreign direct investment

This paper studies the strategic interaction between a foreign direct investor and a host country. We analyze how the investor can use his control rights to protect his investment if he faces the risk of “creeping expropriation” once his investment is sunk. It is shown that this hold-up problem may cause underinvestment if the outside option of the investor is too weak, and overinvestment if it is too strong. We also analyze the impact of spillover effects, we give a rationale for “tax holidays” and we examine how stochastic returns affect the strategic interaction of investor and host country.     

Agents’ incentives under buy-back contracts in a two-stage supply chain

This paper investigates how the behavior of individual decision makers can affect the performance of a supply chain. We study a two-stage supplier–retailer system, using a buy-back contract. Each firm's actions are executed by an agent. The retailer's purchasing agent and the supplier's sales agent are compensated based on certain performance measures, and they act accordingly. We study the impacts of their behavior in both the supplier-as-leader and retailer-as-leader settings. We find that, unless their incentives are carefully constructed, the agents can strongly distort the system's behavior. Specifically, “channel stuffing” (packing the distribution channel with excess inventory) can occur in both settings. Only when the agents are compensated based on net profit do they act in accord with their firms’ objectives. These results may help explain some recent scandals.     

Why is This Show so Dumb? Advertising Revenue and Program Content of Network Television

Economists have long debated how advertising should be treated in a rational-choice framework. Using unique data from the broadcast networks’ 1995 Fall Network Season, we find that sitcoms attract premia from advertisers, while news and police programs get discounted. We interpret our findings according to two important theoretical treatments of advertising. Because the broadcast networks forgo advertising-unfriendly program content, the cable channel HBO responds with a deliberate counter-programming niche strategy, explicitly airing programming with “darker” and “more difficult” advertising-unfriendly content.“The networks have essentially by given up on viewers with functional IQ’s.” – Dean Valentine, President of UPNThe views in this paper are my own and do not represent the views of the Federal Communications Commission, its Commissioners, or its staff.     

Is allowing trading enough? Making secondary markets in spectrum work

The debate on spectrum reforms has mostly focused on the choice between a property rights and a commons regime. This article argues that moving to a property right system requires careful attention to details in order to avoid that “micro” rather than “macro” factors may prevent efficient trades from taking place. It provides a framework to conduct this assessment, identifies a number of possible concerns and puts forward some solutions.     

Order release planning with clearing functions: A queueing-theoretical analysis of the clearing function concept

We consider the problem of planning future order releases in hierarchical production planning and control systems. An established research direction is the clearing function concept: the planned material flow through a production unit is modelled by inventory balance equations for WIP and final products, and the consequences of the stochastic properties of the material flow are modelled by clearing functions, which is the functional relationship between the level of WIP and the maximum output of a work centre in a period.Using a transient M/M/1 model, our paper shows that the usual definition of a nonlinear clearing function suffers from substantial shortcomings concerning both the definition of the function and empirical estimation of its parameters. We propose an alternative transient clearing function and derive a procedure for its parameterization.     

基于SD的牛鞭效应建模与仿真分析

通过建立一个三级供应链系统的SD模型,研究探讨牛鞭效应的产生机制及弱化途径。仿真结果表明,牛鞭效应很大程度上是供应链体系自身的特点和结构造成的,而采用具有信息共享机制的VMI订货模式可以大大弱化牛鞭效应,能够有效降低供应链各节点的库存成本。     

A business and ICT architecture for a logistics city

The city of Melbourne, Australia, stands to benefit from achieving the logistics city status. The planning theme of a logistics city is designed around achieving efficiencies and long term sustainability out of the legacy of dispersed groups of intensive “logistics activity areas”. This is not to re-invent solutions particularly in Melbourne, where the existence of a legacy logistics infrastructure and ad hoc growth has resulted in the business architecture that is constantly in the “catch-up” mode. This is seen as a unique opportunity for developing business models to meet the future challenges of the growth of trade, freight movement and maintaining economic, environmental and urban sustainability. Enterprise architecture will enable attention to be focused on the development of a collaborative business model, which will help to achieve efficiencies in view of the complex set of economic, social and environmental parameters. The logistics city business architecture responds to the shift to a services economy, which is generating different patterns of workforce travel to ensure good access to skilled workers, to other services, to business clients and to national and international markets.     

Markov Perfect Equilibrium in the US digital camera market

This paper examines the model launch and withdrawal decisions of the major digital camera makers for the period 1996–1999. These manufacturers produce differentiated products and some have the experience of participating in a similar market—the film camera market. This paper investigates to what extent the following four factors affect firms' decisions to launch a new model of digital camera: the effects of competition with “within-brand” models; the effects of competition with “cross-brand” models; the level of experience in the film camera market; and market conditions. The empirical findings suggest that good market conditions can accommodate more products, which has a positive effect on product launches. On the other hand, existing cross-brand models have a negative effect on product launches, while within-brand models and experience in similar markets have an ambiguous effect on product launches.     

基于促销行为的供应链牛鞭效应分析

供应链中的牛鞭效应起源于管理者追求利润最大化的理性决策,价格波动是产生牛鞭效应的主要原因之一,而价格波动常常是由零售商周期性地采取一些特殊促销行为引起的.本文通过考虑在动态需求环境下,存在一个包含有一个供应商与一个零售商的简单供应链,当下游零售商有促销行为时与无促销行为时进行定量分析比较,并分析基于促销行为的零售商收益大于库存成本时的牛鞭效应,结果表明,零售商的促销行为很大程度上加剧了牛鞭效应,只有当产品价格比较稳定时,才能尽量避免和减少牛鞭效应.     

An analysis of the main factors affecting bullwhip in reverse supply chains

The bullwhip effect has drawn the attention of supply chains researchers due to the inefficiencies that this phenomenon generates upstream in the supply chain. Various factors that facilitate its appearance have been identified in the literature. However, in spite of current practices and new environmental regulations having increased the importance of returned material chains, this phenomenon has not been studied in detail in the context of closed loop networks. Here we present an analysis of the influence of factors identified as significant with regard to the bullwhip effect in forward chains on the appearance of the bullwhip effect in environments of reverse logistics and its pattern of evolution along the chain. We do so by using a simulator that extends the logic of the Beer Game to this type of environment. The results confirm the influence of the majority of the factors considered, especially the stock and WIP adjustment controllers, as well as the forecasting technique used, the sharing of information among the links, and the final customer demand variability. With respect to specific reverse supply chains factors, the only significant one identified is the percentage of units returned. We have also studied the factors that in this closed loop environment give rise to the classical upstream growing pattern of the bullwhip effect, observing that an increase in the percentage of material returned reduces the likelihood of finding a growing bullwhip pattern. In addition, it is more likely for this pattern to appear when the demand variation is low.     

Quantifying the benefits of breaking bulk in retail operations

We explore the benefits of ‘breaking bulk’ in retail operations. Here, breaking bulk refers to delivering single units from distribution centers to retail outlets rather than the multiple units bundled together by manufacturers termed ‘case-packs’. The focus is largely on the benefits to space management at the retail level, rather than the more obvious reduction in inventory costs. Using data from the grocery industry, results indicate that retail unit profitability can be increased substantially by breaking bulk—but only if current inventory replenishment practices are changed. In essence, breaking bulk allows for either higher product variety within a store or identical variety in smaller stores. This work seeks to quantify the order of magnitude of that benefit.     

The theory of access pricing and its linkage with investment incentives

The paper reviews how the question of access pricing has been fully investigated by the theoretical literature in a static context. On the other hand, there is no developed analysis of the linkage between access pricing and incentives to invest. This paper argues that some useful literature in related areas can be brought to bear on the issue of “races” to build infrastructures, on the relationship between infrastructure and service competition, and on two-way network competition.     

A vendor managed inventory supply chain with deteriorating raw materials and products

Fast deteriorating raw materials such as raw milk, fruit and vegetables are commonly used to produce slowly deteriorating finished products such as milk powders, cheeses, and pastas. This paper studies a Vendor Managed Inventory (VMI) type supply chain where the manufacturing vendor decides how to manage the system-wide inventories of its fast deteriorating raw material and its slowly deteriorating product. The decision variables are a common replenishment cycle of the product and the replenishment frequency of the raw material. We assume the deteriorating rates are known constants and every retailer's demand is deterministic. We develop an integrated model to calculate the total inventory and deterioration cost for such a system. We prove the convexity of the cost functions, and based on this a golden search algorithm is developed to find the optimal solution of the model. Our numerical results show that the deteriorating rate of the product may increase the total cost by more than 40% compared to the zero-deteriorating rate, while the deteriorating raw material has less impact on the total cost (commonly less than 5% in our numerical examples). This indicates that more attention should be paid to the product than the raw material. Further, an increase in the number of retailers can make the replenishment frequency of the raw material increase significantly but the common replenishment cycle of the product decreases a little. This indicates that adding a new retailer would not be felt strongly by the other retailers but would be felt by the supplier of the raw material.