The impact of replenishment policy deviations in a decentralized supply chain

Inter-organizational collaboration has been touted as the driving force behind successful supply chain management. Nonetheless, numerous examples indicate that before all parties in a supply chain can develop full mutual trust and establish an effective governance mechanism, deviations of collaborative agreements from supply chain members is inevitable. The primary objective of this paper is to shed light on the impact of replenishment policy deviations on supply chain performance. We first develop a benchmark case where all supply chain parties follow a base stock policy that maximizes overall supply chain performance. Subsequently, the performance (local as well as system-wide costs and service levels) of various supply chain scenarios that deviate from this benchmark case is examined using simulation methods. The simulation results show that the performance of a decentralized supply chain is contingent on the types of replenishment policies, source of policy deviations, and the interaction of these two factors. Finally, managerial implications for potential supply chain collaboration are discussed.