Current economic downturn and supply chain: the significance of demand and inventory smoothing

Abstract

The aim of this article is to analyse and quantify the effects of demand and inventory smoothing into supply-chain performance, facing the extreme volatility and impetuous alteration of the market produced by the current economic recession. To do so, we model a traditional serial three-stage supply chain and we test five settings of order smoothing under two shocks in the market demand, and we measure effects in terms of internal process benefits and customer service level of all supply chain partners. Results show that the implementation of this inventory strategy should be based on reward schemes; in fact a higher level of smoothing can generally improve the performance of the upstream stages. On the contrary, this approach cannot be always beneficial for the retailer as the decrease in service level can outweigh the decrease in bullwhip.