Demand Propagation in ERP Integrated Assembly Supply Chains: Theoretical Models and Empirical Results

Abstract

This chapter studies supply chain demand propagation in ailERP-integrated manufacturing environment, where item demands areinterrelated by their assembly structure. The integrated planningenvironment is commonplace in industries such as automotive andelectronics, where detailed production and material requirementsdecisions are communicated electronically between facilities and thenrefreshed frequently. While tightly integrated supply chains have clearbenefits, distortion call occur in the demand signals between thefacilities that assemble end-items and those that manufacturesub-assemblies and components. Using both analytical and empiricaltools, we explore an ERP model using basic lot-sizing logic under fairlygeneral settings. We examine key factors that influence demand variationin the assembly supply chain, assess their effects, and develop insightinto the underlying supply processes. We find that (1) order batching bydownstream facilities plays a principal role in upstream demandamplification, (2) the commonly used schedule release policy in ERPsystems may cause unnecessary nervousness in the supply chain, (3) theinterplay of component sharing and demand correlation may contributesignificantly to upstream demand fluctuation, and (4) tightly setproduction capacity may help to dampen demand variations, while paying aprice on increased supply chain inventory. We also find that end-itemdemand variation, a commonly believed source of uncertainty, has nosignificant impact on overall demand amplification under the conditionsstudied here.