Intl. Trans. in Op. Res. 22 (2015) 735–756 DOI: 10.1111/itor.12175 INTERNATIONAL TRANSACTIONS IN OPERATIONAL RESEARCH A simulation model of a coordinated decentralized supply chain Salvatore Cannella a,b ,M´ onica L ´ opez-Campos b , Roberto Dominguez a , Jalal Ashayeri c and Pablo A. Miranda b a Industrial Management & Business Administration Department I, School of Engineering, University of Seville, Seville, Spain b School of Industrial Engineering, Pontificia Universidad Cat´ olica de Valpara´ıso, Valparaiso, Chile c School of Economics and Management, Tilburg University, Tilburg, The Netherlands E-mail: cannella@us.es [Cannella]; mlopezcampos@us.es [L´ opez-Campos]; rdc@us.es [Dominguez]; J.Ashayeri@uvt.nl [Ashayeri]; pablo.miranda@ucv.cl [Miranda] Received 27 November 2012; received in revised form 17 March 2015; accepted 19 March 2015 Abstract This paper presents a simulation-based study of a coordinated, decentralized linear supply chain (SC) system. In the proposed model, any supply tier considers its successors as part of its inventory system and generates replenishment orders on the basis of its partners’ operational information. We show that the proposed coordinated decision-making process creates a reduction in information distortion along an SC compared with a traditional, noncoordinated strategy. A novel result is that we show how a coordinated SC can avoid the detrimental consequences of demand amplification in terms of penalty costs due to the stockout phenomenon in upstream stages. Keywords: decentralized supply chain; coordinated order policies; information sharing; system service level; system dynamics 1. Introduction Supply chain management (SCM) can be viewed as the management or coordination of a network of interconnected businesses and their activities to support suppliers, producers, transporters, and end users to create net value or profit (R ¨ onnqvist et al., 2012). One well-known, common phenomenon exhibited by most supply chain (SC) systems is the bullwhip effect (BWE; Lee et al., 1997; Ge et al., 2004). The phenomenon consists of demand variability amplification when moving upwards in the SC (Trapero et al., 2012; Dominguez et al., 2015). In the operations management literature, BWE is generally viewed in extremely negative terms because of its negative impacts on information distortion, excess inventory levels, higher raw material costs, overtime expenses, and added shipping costs. BWE is frequently observed in industries (Bhattacharya and Bandyopadhyay, 2011; Bray C  2015 The Authors. International Transactions in Operational Research C  2015 International Federation of Operational Research Societies Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA02148, USA.