Characteristics of inventory variation under auto-correlated demand by a myopic ordering policy

In this paper, assuming the demand is auto-correlated time series process, we examine the inventory variation under a specific myopic ordering policy with two different forecasting techniques. Our main findings are: 1) inventory variations are usually non-stationary, which suggests inventory level can easily be out of control; 2) different forecasting ordering policy has different effects on the inventory variation. The main managerial insights obtained from the analysis are that inventory variation can be dramatic even if the bullwhip effect is well contained; therefore in order to minimise the total supply chain costs, companies need to balance both the inventory variation and order variation.bullwhip effect; myopic ordering policy; inventory variation; forecasting; autocorrelated demand; supply chain costs; order variation; supply chain management; SCM.