Abstract:In the supply chain system comprising of one supplier and several retailers, retailers are likely to face two kinds of market demand in a dynamic environment: demand under no sales promotion and demand under sales promotion. In this situation, we assume that the retailers adopt the order-up-to level policy to play orders from suppliers according to the information of market demand. On the other hand, the retailers in the same market may take each other’s order-decision behavior into account. In this article, we discuss the down-stream suppliers’ decisions of ordering from upstream suppliers when retailers have different correlations. Furthermore, we investigate the retailers leveraging the portfolio management approach from securities investment theory to adjust the retailers’ quantity of ordering which can reduce the total variance of ordering to suppliers and the bullwhip effect. And we investigate the retailers’ motivation on order adjustment by analyzing and comparing inventory cost, loss of out of stock and profit which the inventory level before and after order adjustment. Our numerical findings show that portfolio management approach can help to reduce the total variance of ordering to the supplier. Also, this method can reduce the bullwhip effect in the supply chain to some extent when multiple retailers have different correlation coefficients of the decision-making behavior in the same market. The greater the correlation coefficient among the retailers is, the more significant the effect on eliminating the bullwhip effect in supply chain will be. Moreover, at the same correlation coefficient, the greater the variance of the market demand forecasted by the retailers, the greater the effect on reducing the bullwhip effect is with the application of the portfolio management approach.