Supply chains subject to demand shocks

This paper takes up the study of the behaviour of a distribution warehouse of a supply chain when it is subjected to sudden demand shocks. The warehouse is at the downstream end of the supply chain, and caters to the demand off‐take of the chain which follows a responsiveness strategy. We study the effect of different types of replenishment policies followed at the warehouse, and compare their performance with one another in the warehouse system, looking at how quickly they can absorb the shock and smooth out the system, and restore it to its original state. We find that all the conventional replenishment policies suffer from the disadvantage that they inevitably transmit the shock backwards to the upstream units in the chain. We subsequently propose a different design paradigm to formulate the problem under which prevents the backward transmission of the demand shock to the upstream units, but rather attempts to smooth it out.