Revisiting rescheduling: MRP nervousness and the bullwhip effect

Qinyun Li · Stephen Michael Disney

47 citations0/0 files storedInternational Journal of Production Research

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Supply Chain and Inventory Management Quality and Supply Management Forecasting Techniques and Applications

Abstract

We study the material requirements planning (MRP) system nervousness problem from a dynamic, stochastic and economic perspective in a two-echelon supply chain under first-order auto-regressive demand. MRP nervousness is an effect where the future order forecasts, given to suppliers so that they may plan production and organise their affairs, exhibits extreme period-to-period variability. We develop a measure of nervousness that weights future forecast errors geometrically over time. Near-term forecast errors are weighted higher than distant forecast errors. Focusing on replenishment policies for high volume items, we investigate two methods of generating order call-offs and two methods of creating order forecasts. For order call-offs, we consider the traditional order-up-to (OUT) policy and the proportional OUT policy (POUT). For order forecasts, we study both minimum mean square error (MMSE) forecasts of the demand process and MMSE forecasts coupled with a procedure that accounts for the known future influence of the POUT policy. We show that when retailers use the POUT policy and account for its predictable future behaviour, they can reduce the bullwhip effect, supply chain inventory costs and the manufacturer’s MRP nervousness.

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References

1977Time Series Analysis: Forecasting and Control 1978Time Series Analysis: Forecasting and Control.2000The Value of Information Sharing in a Two-Level Supply Chain 1983Production and inventory management 1964Smoothing, Forecasting and Prediction of Discrete Time Series.2015The bullwhip effect: Progress, trends and directions 2003On the bullwhip and inventory variance produced by an ordering policy 2009Information Sharing and Order Variability Control Under a Generalized Demand Model

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