An ARIMA supply chain model with a generalized ordering policy

Abstract

Purpose This paper aims to present a method for production planning that reduces the bullwhip effect. Design/methodology/approach The methods are derived using ARIMA models of the supply chain. Findings The resulting techniques produced an order policy that uses inventory or backlog to absorb the random variation in demand, but has immediate response to variation in the forecast level of demand. Research limitations/implications The limitation of the research is that the optimality of the order policy is based on the assumption that the demand can be modeled using ARIMA models. When this is not the case the method can still be used as a heuristic approach to production smoothing. Practical implications This paper offers a practical and easy to implement approach to production planning. Originality/value The paper introduces a generalized order policy and derives optimal production smoothing parameters for that order policy.