In this paper, an alternative inventory policy that trades off the bullwhip effect at an upstream facility with cost minimization at a current facility, with the goal of reducing system wide total expected inventory costs, when external demand distributjon is autocorrelated, is considered. The alternative inventory policy has a form that is somewhere between one that completely neglects the autocorrleation and one that actively utilizes the autocorrelation. For this purpose, a mathematical model that allows us to evaluate system wide total expected inventory costs for a periodic review system is developed. This model enables us to identify an optimal inventory policy at a current facility that minimizes system wide total expected inventory costs by the best tradeoff of the bullwhip effect at an upstream facility with cost minimization at a current facility. From numerical experiments, it has been found that (i) when the autocorrelation is negative, the optimal policy is one that actively utilizes the autocorrelation, (ii) when the autocorrelation is small and positive, the optimal policy is one that neglects the autocorrelation, and (iii) when the autocorrelation is large and positive, the optimal policy is somewhere between one that actively utilizes the autocorrelation and one that neglect the autocorrelation.

1. Introduction
2. Model Review
    2.1 Model Structure
    2.2 The Retailer
    2.3 The Manufacturer
3. An Alternative Policy at the Retailer
    3.1 Relationship between Retailer andManufacturer
    3.2 Optimal Value of
4. Numerical Experiment
5. Final Remarks
Acknowledgement
References

• 김흥규(단국대학교 경영학부) | Heung-Kyu Kim (School of Business Administration, Dankook University) Corresponding author