Title: Characteristics of inventory variation under auto-correlated demand by a myopic ordering policy

Authors: Layth C. Alwan, John J. Liu, Dong-Qing Yao

Addresses: Sheldon Lubar School of Business Administration, University of Wisconsin-Milwaukee, P.O. Box 742, Milwaukee, WI 53201 USA. ' Department of Logistics and Maritime Studies, Hong Kong PolyU, Hong Hum, Kowloon, Hong Kong. ' Department of E-business and Technology Management, College of Business and Economics, Towson University, MD 21252, USA

Abstract: In this paper, assuming the demand is auto-correlated time series process, we examine the inventory variation under a specific myopic ordering policy with two different forecasting techniques. Our main findings are: 1) inventory variations are usually non-stationary, which suggests inventory level can easily be out of control; 2) different forecasting ordering policy has different effects on the inventory variation. The main managerial insights obtained from the analysis are that inventory variation can be dramatic even if the bullwhip effect is well contained; therefore in order to minimise the total supply chain costs, companies need to balance both the inventory variation and order variation.

Keywords: bullwhip effect; myopic ordering policy; inventory variation; forecasting; autocorrelated demand; supply chain costs; order variation; supply chain management; SCM.

DOI: 10.1504/IJAMS.2010.036592

International Journal of Applied Management Science, 2010 Vol.2 No.4, pp.372 - 387

Published online: 04 Nov 2010 *

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