Impacts of buyers' order batching on the supplier's demand correlation and capacity utilization in a branching supply chain

Hee-Don Jung, Hyeon-Soo Ahn, Byong-Hun Ahn, Seung-Kyu Rhee
1999 Production planning & control (Print)  
There are several ways for a manufacturer to cope with demand uncertainty, e.g. inventories, capacity and cash. Among these, this study focuses on the second one, the capacity, especially on the problem of investing in exible facilities and enhancing their utilization via demand management. I n a supply chain, demands that an upstream rm ( supplier) faces are the purchase orders from the downstream members ( buyers) . We analyse the impacts of buyers' order batching on the supplier's demand
more » ... pplier's demand correlation and capacity utilization in a simple branching supply chain, where a supplier does business with two buyers whose market demands are correlated. Our results show that: ( i) a supplier who faces a smaller demand correlation coeae cient ( i.e. closer to 1) would invest more in exible facilities; ( ii) an increase in order lot size mitigates the correlation of purchase orders; and ( iii) a supplier whose facilities are exible would prefer frequent orders with smaller lots only when market demands are highly negatively correlated. This means that even suppliers whose facilities are exible would rather prefer infrequent orders with larger lots in the presence of positively correlated demands. Additionally, some managerial implications are discussed. Hee-DonJung is a doctoral candidate at KAI ST Graduate School of Management. He also has 9 years ( 1989-1998) consultancy experience in manufacturing and operations strategy and management, supply chain management, service operations, and business process reengineering at Samil Coopers and Lybrand Consulting L.L.P. at Seoul, Korea. After a merge of Coopers and Lybrand and Pricewaterhouse in 1998, he is currently working as a senior manager at Samil PricewaterhouseCoopers ( PwC) at Seoul, Korea. He has a master's degree in management science from KAI ST. He has both academic and practical interests in operations management and strategy in manufacturing and service industries, supply chain management, process innovation, change management, and information technology-related business solutions, e.g. ERP. Hyeon-Soo Ahn is currently researching for his Ph.D. at KAIST Graduate School of Management. He has a master's degree in management science from KAIST. His research interests are in operations strategy, supply chain management and coordination. Impact of buyers' order batching 473 Byong-Hun Ahnis a Professor at KAI ST Graduate School of Management. He holds a Ph.D. in engineering economics systems from Stanford University. He is interested in manufacturing strategy, supply chain management, industrial policy and competitive analysis, energy and environmental management and policy, network industry economics, global environmental issues, and game theory. Seung-Kyu Rhee is a Professor in operations strategy and systems at KAI ST Graduate School of Management. He holds a Ph.D. in management science from KAI ST. His research interests include manufacturing and service operations strategy, supply chain issues, and total quality and environmental management.
doi:10.1080/095372899233000 fatcat:ryxuggfuynfkllwnmcs2arjfwa