Advertisement

This chapter shows that the following simple idea can be applied in many ways to manage business risks in the face of uncertainties. The standard deviation of a sum of interdependent random demands can be lower than the sum of the standard deviations of the component demands.

Keywords

Lead Time Safety Stock Dual Source Supply Disruption Inventory Centralization 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgments

The author is grateful to Anne, Elizabeth, and Richard for all that they have taught him.

References

  1. Alfaro, J. A. C. and C. J. Corbett (2003) “The Value of SKU Rationalization in Practice (The Pooling Effect of Suboptimal Inventory Policies and Nonnormal Demand),” Production and Operations Management 12, 12–29.CrossRefGoogle Scholar
  2. Babich, V., P. H. Ritchken, H. and A. N. Burnetas (2007) “Competition and Diversification Effects in Supply Chains with Supplier Default Risk,” Manufacturing and Service Operations Management . 9, 123–146.CrossRefGoogle Scholar
  3. Benjaafar, S., W. L. Cooper and J. S. Kim (2005) “On the Benefits of Inventory Pooling in Production-Inventory Systems,” Management Science 51, 548–565.CrossRefGoogle Scholar
  4. Ben-Zvi, N. and Y. Gerchak (2005) “Inventory Centralization When Shortage Costs Differ: Priorities and Costs Allocation,” Technical Report, Dept. of Industrial Engineering, Tel-Aviv University.Google Scholar
  5. Bertsimas, D. and I. Ch. Paschalidis (2001) “Probabilistic Service Level Guarantees in Make-to-Stock Manufacturing Systems,” Operations Research 49, 119–133.CrossRefGoogle Scholar
  6. Chen, M. S. and C. T. Lin (1989) “Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem,” Journal of Operational Research Society 40, 597–602.Google Scholar
  7. Chen, M. S. and C. T. Lin (1989) “Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem,” Journal of Operational Research Society 40, 597–602.Google Scholar
  8. Elmaghraby, W. (2000) “Supply Contract Competition and Sourcing Policies,” Manufacturing & Service Operations Management, 2, 350–371.CrossRefGoogle Scholar
  9. Eppen, G. D. (1979) “Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem,” Management Science 25, 498–501.CrossRefGoogle Scholar
  10. Gerchak, Y. and Q.-M. He (2003) “On the Relation Between the Benefits of Risk Pooling and the Variability of Demand,” IIE Transactions 35, 1027–1031.CrossRefGoogle Scholar
  11. Graves, S. C. and B. T. Tomlin (2003) “Process Flexibility in Supply Chains,” Management Science 49 (7), 907–919.CrossRefGoogle Scholar
  12. Hartman, B. C. and M. Dror (2005) “Allocation of Gains from Inventory Centralization in Newsvendor Environments,” IIE Transactions 37, 93–107.CrossRefGoogle Scholar
  13. Kulkarni, S. S., M. J. Magazine, and A. S. Raturi (2005) “On the Tradeoffs Between Risk Pooling and Logistics Costs in a Multi-Plant Network with Commonality,” IIE Transactions 37, 247–265.CrossRefGoogle Scholar
  14. Latour, A. (2001) “Trial by Fire: A Blaze in Albuquerque Sets Off Major Crisis for Cell-Phone Giants,” The Wall Street Journal, Jan. 29, A1.Google Scholar
  15. Minner, S. (2003) “Multiple-Supplier Inventory Models in Supply Chain Management, A Review,” International Journal of Production Economics 81–82, 265–274.CrossRefGoogle Scholar
  16. Sobel, M. J. (2004) “Fill Rates of Single-Stage and Multistage Supply Systems,” Manufacturing & Service Operations Management 6, 41–52.CrossRefGoogle Scholar
  17. Tomlin, B. and Y. Wang (2005) “On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks,” Manufacturing & Service Operations Management 7, 37–57.CrossRefGoogle Scholar

Copyright information

© Springer Science + Business Media, LLC 2008

Authors and Affiliations

  • Matthew J. Sobel

There are no affiliations available

Personalised recommendations