On the effects of risk pooling in supply chain man

Authors: Xia Cai Donglei Du

Publish Date: 2009/09/08

Volume: 25, Issue: 4, Pages: 709-722

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Abstract

The primary challenge in supply chain management SCM is matching supply with uncertain demand Risk pooling is an efficient and promising strategy to meet this challenge by reducing the underlying demand uncertainty through aggregation The main focus of this paper is to analyze the effects of risk pooling under different supply chain settings There are two main contributions First we propose a mathematical framework which serves the multipurpose of 1 unifying existing models on risk pooling in the literature 2 providing new facets and insights of understanding existing results on risk pooling and 3 setting up new ground for extending existing models and results Second we investigate one interesting effect of risk pooling namely the decreasing marginal return or supermodularity We show that there are decreasing marginal returns in risk pooling practices under certain conditions specifically when the demand is independent and identically distributed IID and normally distributed

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