On the Relation Between the Benefits of Risk Pooling and the Variability of Demand

Gerchak, Yigal; He, Qi–Ming

doi:10.1080/07408170304399

Cited by 73 publications

(37 citation statements)

References 14 publications

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“…The results on how demand variation affects inventory efficiencies are mixed. Gerchak and He (2003) and Berman et al (2011) show conditions under which inventory cost savings may increase or decrease with demand variation. Cai and Du (2009) and Yang and Schrage (2009) provide an extensive review of studies on inventory pooling.…”

Section: Introductionmentioning

confidence: 99%

Inventory performance with pooling: Evidence from mergers and acquisitions

Çömez-Dolgan

Tanyeri

2015

International Journal of Production Economics

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a b s t r a c tTheoretical studies show that compared to decentralized inventory management, (i) pooling inventories for different demand sources decreases the optimal safety stock, which in turn decreases inventory costs and (ii) the decrease in stock is related to the correlation between the different demand sources and variabilities of demands. Mergers and acquisitions (M&A) provide a business context to investigate the effects of correlation and variability of the merging firms' demands on potential improvements in inventory performance through inventory pooling. While merging firms may not fully centralize their inventory decisions, the coordination of inventory and supply chain decisions may result in synergies. Using firm-level data for 270 same-industry mergers carried out in U.S. between 1981 and 2009, we find that the inventory turnover of bidder and target firms improves (relative to firms in their industry) following the successful completion of mergers. The improvement in turnover is especially pronounced in deals where the demand of bidder and target firms are negatively correlated prior to the merger. Our results provide novel empirical support for the predictions of theoretical models on inventory economies in M&A.

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Section: Introductionmentioning

confidence: 99%

Inventory performance with pooling: Evidence from mergers and acquisitions

Çömez-Dolgan

Tanyeri

2015

International Journal of Production Economics

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“…Since the publication of the seminal paper by Eppen (1979), inventory pooling has been an important theme in the operations management literature. An extensive body of work, recent reviews of which can be found in Alfaro and Corbett (2003) and Gerchak and He (2003), has documented the costs and benefits of pooling in a variety of settings. This literature has largely focused on the analysis of singleperiod problems or problems with multiple periods but with exogenous lead times.…”

Section: Introductionmentioning

confidence: 99%

On the Benefits of Pooling in Production-Inventory Systems

2005

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W e study inventory pooling in systems with symmetric costs where supply lead times are endogenously generated by a finite-capacity production system. We investigate the sensitivity of the cost advantage of inventory pooling to various system parameters, including loading, service levels, demand and production time variability, and structure of the production system. The analysis reveals differences in how various parameters affect the cost reduction from pooling and suggests that these differences stem from the manner in which the parameters influence the induced correlation between lead-time demands of the demand streams. We compare these results with those obtained for pure inventory systems, where lead times are exogenous. We also compare inventory pooling with several forms of capacity pooling.

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“…Indeed, it is beneficial even if we choose to use the sum of the individual inventories (rather than the optimal pooled amount) (e.g., Eppen, 1979;Chen and Lin, 1989;Cherikh, 2000;Gerchak and He, 2003;Cai and Du, 2009). With convex costs, however, the situation is not clear.…”

Section: Pooled Inventorymentioning

confidence: 88%

“…To generate analytical insights, we provide examples with uniform and exponential demand, and quadratic, cubic and exponential cost functions. We then analyse inventory pooling (e.g., Eppen, 1979;Chen and Lin, 1989;Cherikh, 2000;Gerchak and He, 2003;Sobel 2008;Yang and Schrage, 2009;Cai and Du, 2009) with nonlinear production costs. Inventory pooling, whether physical or virtual, reduces effective demand variability, and thus reduces (linear) expected costs, provided that transshipment is not too expensive.…”

Section: Introductionmentioning

confidence: 99%

Manufacturing newsvendors and inventory pooling with nonlinear production costs

Gerchak

2016

IJIR

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Abstract:We discuss a manufacturing newsvendor problem with nonlinear production costs. We perform comparative statics with respect to the unit revenue, the production cost function and the demand distribution. We provide several specific examples. Then we analyse inventory pooling between manufacturing newsvendors with nonlinear production costs, which involves comparing joint production to individual production. We illustrate the findings by using examples with demands following i.i.d. uniform and normal distributions.

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On the Relation Between the Benefits of Risk Pooling and the Variability of Demand

Cited by 73 publications

References 14 publications

Inventory performance with pooling: Evidence from mergers and acquisitions

Inventory performance with pooling: Evidence from mergers and acquisitions

On the Benefits of Pooling in Production-Inventory Systems

Manufacturing newsvendors and inventory pooling with nonlinear production costs

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