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Production Management. Sharing demand information.

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A retailer following a (Q,r) policy and facing Poisson demands, places order of size Q with a supplier that does not have economies of scale in ordering/producing.

1. Describe the form of the supplier's optimal policy in the absence of demand information sharing.

2. Describe the form of the supplier's optimal policy if the retailer shares demands information with the supplier.

3.Under what conditions will the retailer be willing to share information?

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1) In the absence of demand information sharing , the form of suppliers optimal policy will be to have an estimate of the demand to be distributed in a poisson fashion with mean of Q units. The standard deviation of demand will also be Q. We can see the bull whip effect happening in this case. For example if the mean demand is 10units/week , the retailer will place an order of, say, 15 units/week ( the rest 5 units is the safety stock retailer would want to keep to prevent against a stockout). Thus the supplier ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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