Demand variance amplification in supply chains under the (R, nQ) inventory policies

Accurate information flow is critical to a supply chain to achieve effective coordination and integration among members. Demand information in the form of orders is often more variable along the upstream direction, leading to the phenomenon known as the bullwhip effect. This study aims to investigate demand variance at different stages in a supply chain through analysis of two key issues in supply chain management: inventory management and information flow. A two-stage supply chain with a distributor and a retailer where the ultimate customer demand follows an arbitrary stationary distribution is studied. Both the distributor and the retailer use the reorder-point, order-quantity (R, nQ) inventory policies. The distributor and the retailer may select any arbitrary positive integer as their batch size in accordance with their needs. This research focuses on investigating whether or not there is variance amplification and identifying its main causes. It examines the managerial implications of this amplification. The findings of this study are compared to prior findings reported in the literature and some supply chain initiatives, such as Information Sharing and Echelon-stock policies.