Analysis of supply chain's strategic resolutions to order variability--risk pooling and bundling--under vector autoregressive demand

This paper presents how a supply chain consisting of a supplier and two manufacturers can reduce its order variability by applying two common uncertainty reduction methods: risk pooling and bundling. In our model, vector autoregressive (VAR) processes describe customers' demands. We address the magnitude of order variability reduction when the system applies risk pooling or bundling; the variability reduction's behavior with respect to autocorrelation and lead time; and the managerial implications derived from our analytical results. We find that business alliance and product positioning play an important role in variability reduction method implementation.