Altruistic behaviour in a two-echelon supply chain with unmatched proportional feedback controllers

Abstract

We study a two echelon supply chain with first order autoregressive demand and unit replenishment lead-times. Each echelon of the supply chain uses conditional expectation to generate Minimum Mean Squared Error (MMSE) forecasts. Both echelons use these forecasts inside the "Order-Up-To" policy to generate replenishment orders. We investigate three different scenarios: The first is when each echelon aims to minimize their own local inventory holding and backlog costs. The second scenario is concerned with an altruistic retailer who is willing and able to sacrifice some of his own performance for the benefit of the total supply chain. The retailer does this by smoothing the demand placed on the manufacturer by using a matched proportional controller in the inventory and WIP feedback loops. The third scenario is concerned with an altruistic retailer with two, unmatched, controllers. The matched controller case out-performs the traditional case by 14.1%; the unmatched controller case outperforms the matched controller case by 4.9%.

Price and location competition in supply chain with horizontal altruistic retailers

“…Their results show that if the retailer takes responsibility for supply chain cost reduction and acts altruistically by dampening his order variability, then the performance enhancement is robust. Disney and Hosoda (2009) study a two-echelon supply chain with first order autoregressive demand and unit replenishment lead-times. By investigating the effects of retailer's altruism in different scenarios, the authors show the altruistic contribution in reducing the inventory holding and backlog costs.…”

Who Benefits from Altruism in Supply Chain Management?

“…[31,32] also find that altruism is a gene-culture coevolution and an internalization of norms. In the context of SCM, [33][34][35][36][37] discuss the effect of altruism on strategic behavior or partnership management. Differently with these papers, we consider altruism in a generalized supply chain with such decisions as ordering, pricing and ASE.…”