Title: Target setting under uncertainty

Authors: Rui Fernandes; Joaquim Borges Gouveia; Carlos Pinho

Addresses: Department of Economics, Management and Industrial Engineering, University of Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal. ' Department of Economics, Management and Industrial Engineering, University of Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal. ' Department of Economics, Management and Industrial Engineering, University of Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal

Abstract: The main goal of this study is the definition of a key performance indicator, able to measure the impact of the demand uncertainty in a multi-stage supply chain inventory level. Despite the traditional bullwhip effect being normally analysed considering the particular dimension of the demand volatility in the amplification of upstream orders, an endogenous effect can be found and measured using a new indicator, able to help managers understanding the demand uncertainty penetration in the different stages of a supply chain. With this metric, managers are able to establish a more reliable target for their stock level, in each node, according to the risk exposure, promoting the optimisation of the invested capital in an aggregated supply chain analysis. The mathematical model is supported on the real options methodology. Overall, our investigation increases the knowledge related with demand|s uncertainty treatment in supply chain performance.

Keywords: target setting; demand uncertainty; supply chain management; SCM; supply chain performance; inventory levels; mathematical modelling; real options.

DOI: 10.1504/IJBPSCM.2011.043816

International Journal of Business Performance and Supply Chain Modelling, 2011 Vol.3 No.4, pp.297 - 315

Received: 22 Oct 2010
Accepted: 19 May 2011
Published online: 30 Sep 2014 *

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