The Impact of Order Smoothing on the Performance of Supply Chain

This paper considers a single-echelon supply chain where a retailer holds an inventory to satisfy a customer demand and faces an external supplier who has a fixed supply capacity. It proposes an inventory replenishment policy that uses "order smoothing" to reduce order-size variability and reduce the total costs, including order cost and inventory cost. It studies two smoothing replenishment policies, generalized order-up-to policy and two-period moving average policy. It analyzes the impact of smoothing parameters, fixed supply capacity, and initial inventory on the performance of supply chain. Our analysis shows that order smoothing policies can reduce the total costs.