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Risk-Pooling Essentials pp 5–23Cite as

Risk Pooling in Business Logistics

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Part of the book series: SpringerBriefs in Business ((BRIEFSBUSINESS))

Abstract

Risk pooling in business logistics can reduce the total variability of demand and/or lead time and thus uncertainty and risk (the possibility of not achieving business objectives) by consolidating individual variabilities (measured with the standard deviation) of demand and/or lead time. These individual variabilities are consolidated by aggregating demands (demand pooling) and/or lead times (lead-time pooling). This reduction in uncertainty allows to reduce inventory without reducing the customer service level (product availability) or to increase the service level without increasing the inventory or a combination of both and to cope with product variety. Risk pooling can be achieved by (1) inventory pooling, (2) virtual pooling, (3) transshipments, (4) centralized ordering, (5) order splitting, (6) component commonality, (7) postponement, (8) capacity pooling, (9) product pooling, and (10) product substitution. These risk-pooling methods can reduce demand and/or lead-time uncertainty. Risk pooling is explained by the Minkowski-inequality, the subadditivity property of the square root of non-negative real numbers, and the balancing effect of higher-than-average and lower-than-average demands and/or lead times. The ten risk-pooling methods can be implemented everywhere along the supply chain and mainly pertain to the value activities storage (1), transportation (2 and 3), procurement (4 and 5), production of goods and services (6, 7, and 8), and sales and distribution (9 and 10).

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Notes

  1. 1.

    Nahmias (2005 p. 334), Anupindi et al. (2006, p. 168), Romano (2006, p. 320), Simchi-Levi et al. (2008, p. 48), Wisner et al. (2009, p. 513), Bidgoli (2010, p. 209).

  2. 2.

    Gerchak and He (2003, p. 1027), Özer (2003, p. 269), Romano (2006, p. 320), Simchi-Levi et al. (2008, p. 48), Cachon and Terwiesch (2009, pp. 325, 350), Bidgoli (2010, p. 209).

  3. 3.

    Chopra and Meindl (2007, p. 212), Cachon and Terwiesch (2009, p. 321).

  4. 4.

    Flaks (1967, p. 266), Gerchak and Mossman (1992, p. 804), Gerchak and He (2003, p. 1027), Özer (2003, p. 269), Nahmias (2005, p. 334), Anupindi et al. (2006, p. 187), Chopra and Meindl (2007, p. 212).

  5. 5.

    Anupindi et al. (2006, p. 168).

  6. 6.

    Wisner et al. (2009, p. 513).

  7. 7.

    Hubbard (2009, pp. 84f.).

  8. 8.

    Knight (2005, pp. 19ff.), Haimes (2009, pp. 265ff.), Hubbard (2010, pp. 49f.).

  9. 9.

    Wagner (1997, p. 51), Knight (2005, pp. 19ff.), Hubbard (2009, pp. 79ff.; 2010, pp. 49f.).

  10. 10.

    Cf. Haimes (2009, p. 265).

  11. 11.

    Haimes (2009, p. 265).

  12. 12.

    Haimes (2009, p. 266).

  13. 13.

    Bowersox et al. (1986, p. 58), Delfmann (1999, p. 195), Pishchulov (2008, p. 17).

  14. 14.

    Wagner (1997, p. 51).

  15. 15.

    Cf. e.g. Wagner (1997, p. 51), Köhne (2007, p. 321).

  16. 16.

    Wagner (1997, p. 52).

  17. 17.

    Wagner (1997, p. 51).

  18. 18.

    Hubbard (2009, p. 91).

  19. 19.

    Kim and Benjaafar (2002, p. 16), Cachon and Terwiesch (2009, p. 328).

  20. 20.

    Eppen (1979), Chen and Lin (1989), Tagaras (1989), Tagaras and Cohen (1992, pp. 1080f.), Evers (1996, p. 114, 1997, pp. 71f.), Cherikh (2000, p. 755), Eynan and Fouque (2003, p. 704), Kemahloğlu-Ziya (2004), Bartholdi and Kemahloğlu-Ziya (2005), Wong (2005), Jiang et al. (2006, p. 25), Thomas and Tyworth (2006, p. 253), Chopra and Meindl (2007, pp. 324ff.), Pishchulov (2008, pp. 8, 17f.), Schmitt et al. (2008, pp. 14, 20), Simchi-Levi et al. (2008, p. 48), Cachon and Terwiesch (2009, pp. 325, 331, 344, 350).

  21. 21.

    Krishnan and Rao (1965), Tagaras (1989), Tagaras and Cohen (1992, pp. 1080f.), Evers (1996, pp. 111, 114; 1997, pp. 71f.; 1999, p. 122), Eynan (1999), Cherikh (2000, p. 755), Ballou and Burnetas (2000, 2003), Xu et al. (2003), Ballou (2004b, pp. 385–389), Wong (2005), Kroll (2006), Reyes and Meade (2006), Chopra and Meindl (2007, pp. 324ff.), Cachon and Terwiesch (2009, pp. 325, 329, 344, 350).

  22. 22.

    Anupindi and Bassok (1999), Cherikh (2000, p. 755), Lin et al. (2001), Eynan and Fouque (2003, pp. 704, 707, 2005, p. 98), Kemahloğlu-Ziya (2004), Bartholdi and Kemahloğlu-Ziya (2005), Özen et al. (2005), Chopra and Meindl (2007, pp. 324ff.), Simchi-Levi et al. (2008, pp. 234–238), Cachon and Terwiesch (2009, p. 331), Yang and Schrage (2009, p. 837).

  23. 23.

    Sussams (1986, p. 8), Romano (2006, p. 320).

  24. 24.

    Cf. e.g. Chopra and Meindl (2007, p. 336).

  25. 25.

    Cf. e.g. Pishchulov (2008, p. 18).

  26. 26.

    Wagner (1997, p. 51).

  27. 27.

    Cf. e.g. Anupindi et al. (2006, p. 167), Chopra and Meindl (2007, p. 336).

  28. 28.

    Gerchak and Mossman (1992, p. 804), Swaminathan (2001, p. 131), Hillier (2002b, p. 570), Randall et al. (2002, p. 56), Gerchak and He (2003, p. 1027), Özer (2003, p. 269), Chopra and Sodhi (2004, pp. 55, 60), Nahmias (2005, p. 334), Anupindi et al. (2006, pp. 167, 187), Romano (2006, p. 320), Chopra and Meindl (2007, p. 177), Pishchulov (2008, pp. 8, 18, 26), Simchi-Levi et al. (2008, pp. 48, 196, 281, 348), Yu et al. (2008, p. 1), Yang and Schrage (2009, p. 837), Bidgoli (2010, p. 209).

  29. 29.

    Evers (1997, pp. 55, 57, 1999, pp. 121f.), Benjaafar and Kim (2001), Benjaafar et al. (2004a, p. 1442, 2004b, p. 91), Chopra and Sodhi (2004, pp. 59ff.), Tomlin and Wang (2005, p. 37), Gürbüz et al. (2007, p. 302), Van Mieghem (2007, pp. 1270f.), Ganesh et al. (2008, p. 1134), Cachon and Terwiesch (2009, p. 332), Wanke and Saliby (2009, p. 690), Yang and Schrage (2009, p. 837).

  30. 30.

    Thomas and Tyworth (2006, p. 254).

  31. 31.

    Evers (1999, pp. 121f.), Cachon and Terwiesch (2009, p. 336).

  32. 32.

    Soanes and Hawker (2008).

  33. 33.

    Gravetter and Wallnau (2008, p. 109).

  34. 34.

    Gerchak and He (2003, p. 1028).

  35. 35.

    Eppen (1979, p. 498), Eppen and Schrage (1981, p. 52), Evers (1994, p. 51), Özer (2003, p. 269), Rabinovich and Evers (2003a, p. 206).

  36. 36.

    Eppen and Schrage (1981, p. 52).

  37. 37.

    Anupindi et al. (2006, pp. 187, 189).

  38. 38.

    Chopra and Meindl (2007, p. 318).

  39. 39.

    Oeser (2012, pp. 153f.).

  40. 40.

    Evers (1997, p. 55), Chen and Chen (2003).

  41. 41.

    Evers (1999, p. 122).

  42. 42.

    Evers (1997, p. 71, 1999, p. 122).

  43. 43.

    Cachon and Terwiesch (2009, p. 339).

  44. 44.

    Eppen and Schrage (1981), Schwarz (1989), Schoenmeyr (2005, p. 4), Gürbüz et al. (2007, p. 293).

  45. 45.

    Benjaafar and Kim (2001, p. 13), Kim and Benjaafar (2002, p. 12), Gerchak and He (2003, p. 1027), Benjaafar et al. (2005), Anupindi et al. (2006, p. 191), Pishchulov (2008, pp. 8, 17), Cachon and Terwiesch (2009, p. 322).

  46. 46.

    Benjaafar et al. (2004a, p. 1438).

  47. 47.

    Eppen (1979), Benjaafar and Kim (2001, p. 13), Taylor (2004, pp. 304f.), Reiner (2005, p. 434), Heil (2006).

  48. 48.

    Anupindi et al. (2006, pp. 191f.), Chopra and Meindl (2007, pp. 322ff.).

  49. 49.

    Pfohl (2004a, pp. 122f.).

  50. 50.

    Pishchulov (2008, pp. 8, 17).

  51. 51.

    Maister (1976), Das (1978), Eppen (1979), Zinn et al. (1989), Evers and Beier (1993), Evers (1995), Croxton and Zinn (2005).

  52. 52.

    Zinn et al. (1989), Ronen (1990), Mahmoud (1992), Tallon (1993), Evers (1996, 1997), Evers and Beier (1998), Tyagi and Das (1998), Das and Tyagi (1999), Wanke (2009), Wanke and Saliby (2009).

  53. 53.

    Ballou (1981, 2000, 2004a, b, pp. 381f., 2005).

  54. 54.

    Caddy and Helou (2000, p. 1715), Planning and Reporting (2001), Kroll (2006).

  55. 55.

    Memon (1997), Christopher (1998, p. 135), Planning and Reporting (2001), SDM (2001), Frontline Solutions Europe (2002), Electrical Wholesaling (2003), Mason et al. (2003), Fung et al. (2005), Kroll (2006), Cioletti (2007), Cachon and Terwiesch (2009, pp. 350, 469).

  56. 56.

    Planning and Reporting (2001), Randall et al. (2002, 2006), Netessine and Rudi (2006).

  57. 57.

    Ballou (2004b, pp. 335, 385–389).

  58. 58.

    Randall et al. (2002, p. 56).

  59. 59.

    Tagaras (1989), Tagaras and Cohen (1992), Evers (1997, 1999), Hong-Minh et al. (2000), Çömez et al. (2012a, 2012b), Wanke and Saliby (2009), Yang and Schrage (2009, p. 837).

  60. 60.

    Evers (1997, 1999, p. 121), Wanke and Saliby (2009).

  61. 61.

    Eppen and Schrage (1981, p. 51), Erkip et al. (1990, p. 381), Ganeshan et al. (2007, p. 341), Gürbüz et al. (2007, p. 293).

  62. 62.

    Eppen and Schrage (1981), Cachon and Terwiesch (2009, pp. 336–341).

  63. 63.

    Eppen and Schrage (1981, p. 67).

  64. 64.

    Eppen and Schrage (1981, p. 52).

  65. 65.

    Eppen (1979, p. 498), Eppen and Schrage (1981, p. 52).

  66. 66.

    Evers (1999, p. 123), Thomas and Tyworth (2006, p. 245), Qi (2007).

  67. 67.

    Hill (1996), Chiang (2001), Mishra and Tadikamalla (2006), Thomas and Tyworth (2007, p. 188).

  68. 68.

    Evers (1999, p. 122).

  69. 69.

    Evers (1999, pp. 123f.).

  70. 70.

    Srinivasan et al. (1992), Jönsson et al. (1993), Meyer and Lehnerd (1997), Ma et al. (2002), Mirchandani and Mishra (2002), Kim and Chhajed (2001), Swaminathan (2001, p. 131), Labro (2004), Van Mieghem (2004), Ashayeri and Selen (2005), Chew et al. (2006), Humair and Willems (2006), Simchi-Levi et al. (2008, p. 348).

  71. 71.

    Grotzinger et al. (1993, p. 524).

  72. 72.

    Yang and Schrage (2009, p. 837).

  73. 73.

    Dogramaci (1979, p. 129), Guerrero (1985, p. 409), Vakharia et al. (1996, p. 15), Kreng and Lee (2004), Labro (2004, p. 363), Kulkarni et al. (2005, p. 247), Graman and Magazine (2006, p. 1074), Bidgoli (2010, p. 21).

  74. 74.

    Thonemann (2010, p. 444).

  75. 75.

    Thonemann (2010, slides to chap. 8, chart 11).

  76. 76.

    Mayne et al. (2008), Thonemann (2010, p. 448).

  77. 77.

    Pfohl (1994, p. 143), Swaminathan and Tayur (1998), Swaminathan (2001, pp. 129f.), Sheffi (2004, pp. 95f., 100), Anupindi et al. (2006, pp. 192f.), Chopra and Meindl (2007, p. 362), García-Dastugue and Lambert (2007, pp. 57f.), Piontek (2007, pp. 86f.), Simchi-Levi et al. (2008, p. 346), LeBlanc et al. (2009, p. 19).

  78. 78.

    Bucklin (1965), Van Hoek (2001, p. 161).

  79. 79.

    Bucklin (1965).

  80. 80.

    Lawrence and Zanakis (1984, p. 25), Neumann (1996, pp. 9f.), Swaminathan (2001, pp. 126f.), Sheffi (2004, pp. 93f.), Alicke (2005, p. 44), Nahmias (2005, p. 55), Anupindi et al. (2006, pp. 168, 187), Donnellan et al. (2006, p. x), Chopra and Meindl (2007, pp. 188f.), Simchi-Levi et al. (2008, pp. 190, 194, 345), Shah (2009, p. 166), Bretzke (2010, pp. 77f.), Schuckel (2010, p. 152).

  81. 81.

    Bretzke (2010, pp. 77f.).

  82. 82.

    Lee (1996), Aviv and Federgruen (2001b, p. 579).

  83. 83.

    Yang and Schrage (2009, p. 837).

  84. 84.

    Lee and Tang (1997, p. 52), Aviv and Federgruen (2001a, p. 514, 2001b, p. 579), Alfaro and Corbett (2003, pp. 12, 15), Piontek (2007, p. 87), Dominguez and Lashkari (2004, p. 2113), Anupindi et al. (2006, pp. 192f.), Caux et al. (2006), Jiang et al. (2006), Cholette (2009).

  85. 85.

    Plambeck and Taylor (2003), Iyer and Jain (2004), Jain (2007), Simchi-Levi et al. (2008, p. 281).

  86. 86.

    Cachon and Terwiesch (2009, pp. 149ff., 325, 349, 467).

  87. 87.

    Masters (1980, p. 71), Evers (1994), Ihde (2001, p. 33), Chen and Chen (2003), Chen and Ren (2007).

  88. 88.

    Anupindi et al. (2006, p. 223), Yu et al. (2008, p. 1), Cachon and Terwiesch (2009, p. 463).

  89. 89.

    Yu et al. (2008, p. 1).

  90. 90.

    Anupindi et al. (2006, p. 224), Yu et al. (2008, p. 1).

  91. 91.

    Cf. Evers (1997, 1999), Wanke and Saliby (2009).

  92. 92.

    Plambeck and Taylor (2003), Iyer and Jain (2004), Jain (2007), Simchi-Levi et al. (2008, p. 281).

  93. 93.

    Upton (1994, 1995), Jordan and Graves (1995), Weng (1998), Pringle (2003), Chopra and Sodhi (2004, p. 59), Goyal et al. (2006), Van Mieghem (2007), Mayne et al. (2008), Cachon and Terwiesch (2009, pp. 344-351).

  94. 94.

    Cachon and Terwiesch (2009, pp. 344f.).

  95. 95.

    Mayne et al. (2008).

  96. 96.

    Cachon and Terwiesch (2009, p. 330).

  97. 97.

    Jabbonsky (1994), Lahey (1997), Kulpa (2001), Pamplin (2002), Alfaro and Corbett (2003, p. 12), Neale et al. (2003), HTT (2005), Sheffi (2006, p. 119, 2007), Covino (2008), Harper (2008), Sobel (2008, p. 172), Chain Drug Review (2009a, 2009b), Hamstra (2009), MMR (2009), Orgel (2009), Pinto (2009a, 2009b), Ryan (2009), Thayer (2009).

  98. 98.

    Alfaro and Corbett (2003, p. 12), Cachon and Terwiesch (2009, pp. 330–336, 467).

  99. 99.

    Thonemann (2010, slides to chap. 8, chart 10).

  100. 100.

    Cachon and Terwiesch (2013, p. 326f.).

  101. 101.

    Thonemann and Bradley (2002), Garry (2011, p. 32).

  102. 102.

    The Financial Times (1998, p. 15), as cited in Thonemann and Bradley (2002, p. 549).

  103. 103.

    Kelly Blue Book (1988–1995), as cited in Thonemann and Bradley (2002, p. 549).

  104. 104.

    Thonemann (2010), slides to chap. 8, chart 18).

  105. 105.

    Alfaro and Corbett (2003, p. 25).

  106. 106.

    Swaminathan (2001, p. 130), Chopra and Meindl (2007, pp. 324ff.), Simchi-Levi et al. (2008, p. 348).

  107. 107.

    Eynan and Fouque (2003, 2005).

  108. 108.

    Chopra and Meindl (2007, pp. 324ff.).

  109. 109.

    Ganesh et al. (2008, p. 1124), Yang and Schrage (2009, p. 837).

  110. 110.

    Cf. Romano (2006, p. 320), Simchi-Levi et al. (2008, p. 48), Cachon and Terwiesch (2009, pp. 325, 350), Bidgoli (2010, p. 209).

  111. 111.

    Cf. Chopra and Meindl (2007, p. 336), Cachon and Terwiesch (2009, pp. 325, 350).

  112. 112.

    Gaukler (2007).

  113. 113.

    Gaukler (2007).

  114. 114.

    Gravetter and Wallnau (2008, p. 109).

  115. 115.

    Alisch et al. (2004, p. 3454).

  116. 116.

    Thonemann (2005, pp. 255f.).

  117. 117.

    Caron and Marchet (1996, p. 239), Pfohl (2004a, p. 114), Thonemann (2005, pp. 255f.), Chopra and Meindl (2007, p. 306).

  118. 118.

    Thonemann (2005, pp. 255f.).

  119. 119.

    Thonemann (2005, p. 257).

  120. 120.

    Zinn et al. (1989, p. 4).

  121. 121.

    Thonemann (2005, p. 238).

  122. 122.

    Korovessi and Linninger (2006, pp. 489f.).

  123. 123.

    Gaukler (2007).

  124. 124.

    Cf. e. g. Thonemann (2005, p. 220), Cachon and Terwiesch (2009, p. 235).

  125. 125.

    Gaukler (2007).

  126. 126.

    Gaukler (2007).

  127. 127.

    Gaukler (2007).

  128. 128.

    Cf. Mood et al. (1974, p. 178), Zinn et al. (1989, p. 5), Jorion (2009, p. 43).

  129. 129.

    Gaukler (2007).

  130. 130.

    Minkowski (1896), Abramowitz and Stegun (1972, p. 11), Bauer (1974, p. 72), Gradshteyn and Ryzhik (2007, p. 1061).

  131. 131.

    The expression \(\sqrt {\mathop \sum \nolimits_{i = 1}^{n} \mathop \sum \nolimits_{j = 1}^{n} \sigma_{i} \sigma_{j} \rho_{ij} }\) (cf. Moyer et al. 1992, p. 222) in Eq. (2.8) can also be written as \(\sqrt {\mathop \sum \nolimits_{{{i}} = 1}^{{n}} \left( {{\sigma }_{{i}} } \right)^{2} + \mathop \sum \nolimits_{{{{i}} = 1}}^{{n}} \mathop \sum \nolimits_{{{{j}} = 1,{{j}} \ne {{i}}}}^{{n}} {\sigma }_{{i}} {\sigma }_{{j}} {\rho }_{{ij}} }\) (cf. Jorion 2009, p. 43).

  132. 132.

    Cf. Eppen (1979, p. 500).

  133. 133.

    Oeser (2011, pp. 19ff.).

  134. 134.

    Tallon (1993, p. 186), Anupindi et al. (2006, p. 191), Gaukler (2007), Ganesh et al. (2008, p. 1134), Pishchulov (2008, p. 8), Romano (2006, p. 320), Simchi-Levi et al. (2008, p. 48, 50f.). For further information please refer to Oeser (2011, p. 17).

  135. 135.

    Kemahlioğlu-Ziya (2004, p. 40).

  136. 136.

    Yang and Schrage (2009, p. 837).

  137. 137.

    Baker et al. (1986), Pasternack and Drezner (1991), Gerchak and Mossman (1992).

  138. 138.

    McGillivary and Silver (1978), Parlar and Goyal (1984), Anupindi and Bassok (1999), Ernst and Kouvelis (1999), Rajaram and Tang (2001), Netessine and Rudi (2003).

  139. 139.

    Kemahloğlu-Ziya (2004), Bartholdi and Kemahloğlu-Ziya (2005).

  140. 140.

    Anupindi and Bassok (1999).

  141. 141.

    Dai et al. (2008, p. 411).

  142. 142.

    Çömez et al. (2012a, p. 290).

  143. 143.

    Dogramaci (1979, p. 130).

  144. 144.

    Ballou (2004b, pp. 4, 6f.), Larson and Halldórsson (2004), CSCMP (2010).

  145. 145.

    Alisch et al. (2004, p. 2870).

  146. 146.

    Wegner (1996, pp. 8f.).

  147. 147.

    See e.g. Richter (1996a, b, 1997), Richter and Dobos (1999, 2003a, b), Dobos and Richter (2000), Richter and Sombrutzki (2000), Richter and Weber (2001), Richter and Gobsch (2005), Gobsch (2007).

  148. 148.

    Evers (1999, p. 123), Wanke and Saliby (2009, p. 679).

  149. 149.

    Delfmann (2000, pp. 323f.), Ballou (2004b, pp. 9ff., 27, 29), Kuhlang and Matyas (2005, pp. 659f.), Grün et al. (2009, pp. 15, 305), Wannenwetsch (2009, pp. 21f.).

  150. 150.

    Porter (2008, p. 75).

  151. 151.

    Cachon and Terwiesch (2009, p. 350).

  152. 152.

    Boyabatli and Toktay (2004), Van Mieghem (2008, pp. 313–350).

  153. 153.

    Porter (1998, p. xviii).

  154. 154.

    Oeser (2011, pp. 134ff.).

  155. 155.

    Al Ghamdi (2005).

  156. 156.

    Chopra and Meindl (2007, p. 336), Cachon and Terwiesch (2009, pp. 325, 350).

  157. 157.

    For example Feitzinger and Lee (1997).

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    Gerald Oeser

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Oeser, G. (2015). Risk Pooling in Business Logistics. In: Risk-Pooling Essentials. SpringerBriefs in Business. Springer, Cham. https://doi.org/10.1007/978-3-319-14157-2_2

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