The impact of material coordination concepts on planning stability in supply chains

The goods flows in supply chains can be managed based on either the purchase orders of the next company in the chain or on the demand information from the end customer in the total supply chain. Many standard software packages which are meant for controlling goods flows are based on the purchase orders of their immediate customers (in accordance with the materials requirement planning (MRP) logic). In this paper it is investigated how the type of demand information used influences the stability of the planning in the supply chain. For this purpose a simulation experiment was set up, using data from a truck manufacturer in the Netherlands. This company was confronted with the choice to either stick to its own planning logic (based on undistorted demand information from the end of the supply chain) or to change over to a standard package based on the MRP-logic. This experiment reveals how unstable the planning in a supply chain may become if the wrong demand information is being used. The experiment also shows which factors in the production environment as well as in the market place have the biggest impact on the instability of the planning. The results were discussed with the development department of a major software company. Based on the results the software company is now considering to adapt the planning logic in their standard software package.