Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information

An important observation in supply chain management, known as the bullwhip effect, suggests that demand variability increases as one moves up a supply chain. In this paper we quantify this effect for simple, two-stage supply chains consisting of a single retailer and a single manufacturer. Our model...

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Bibliographic Details
Published in:Management science 2000-03, Vol.46 (3), p.436-443
Main Authors: Chen, Frank, Drezner, Zvi, Ryan, Jennifer K, Simchi-Levi, David
Format: Article
Language:English
Subjects:
bullwhip effect
Bullwhips
Consumer demand
Customers
Forecasting
Forecasting models
Forecasting standards
Forecasts
Information
Inventories
inventory
Inventory management
lead time
Management science
Mathematical independent variables
Point estimators
Retail stores
Statistical variance
Studies
Supply and demand
supply chain
Supply chain management
Supply chains
variability
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Summary:An important observation in supply chain management, known as the bullwhip effect, suggests that demand variability increases as one moves up a supply chain. In this paper we quantify this effect for simple, two-stage supply chains consisting of a single retailer and a single manufacturer. Our model includes two of the factors commonly assumed to cause the bullwhip effect: demand forecasting and order lead times. We extend these results to multiple-stage supply chains with and without centralized customer demand information and demonstrate that the bullwhip effect can be reduced, but not completely eliminated, by centralizing demand information.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.46.3.436.12069