Demand evolution in stochastic inventory systems: Riskiness increase

This paper characterizes demand evolution in the steady state under common inventory policies in a single-location stochastic inventory system. Our results show that downstream demand nonstrictly second-degree stochastically dominates upstream orders and the bullwhip effect occurs. We provide the link between demand evolution and utility theory for stochastic inventory systems. Our model is general in that ultimate customer demand follows an arbitrary stationary distribution and the facility may arbitrarily select policy parameters.