Impacts of buyers' order batching on the supplier's demand correlation andcapacity utilization in a branching supply chain

There are several ways for a manufacturer to cope with demand uncertainty, e.g. inventories, capacity and cash. Among these, this study focuses on the second one, the capacity, especially on the problem of investing in flexib le facilities and enhancing their utilization via demand management. In a s upply chain? demands that an upstream firm (supplier) faces are the purchas e orders from the downstream members (buyers). We analyse the impacts of bu yers' order batching on the supplier's demand correlation and capacity util ization in a simple branching supply chain, where a supplier does business with two buyers those market demands are correlated. Our results show that: ii a supplier who faces a smaller demand correlation coefficient (i.e. clo ser to -1) would invest more in flexible facilities; (ii) an increase in or der lot size mitigates the correlation of purchase orders; and (iii) a supp lier whose facilities are flexible would prefer frequent orders with smalle r lots only when market demands are highly negatively correlated. This mean s that even suppliers whose facilities are flexible would rather prefer inf requent orders with larger lots in the presence of positively correlated de mands. Additionally, some managerial implications are discussed.