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Impact of information sharing and lead time on bullwhip effect and on-hand inventory

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  • Agrawal, Sunil
  • Sengupta, Raghu Nandan
  • Shanker, Kripa
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    Abstract

    This work analyzes a two echelon (warehouse-retailer) serial supply chain to study the impact of information sharing (IS) and lead time on bullwhip effect and on-hand inventory. The customer demand at the retailer is assumed to be an autoregressive (AR(1)) process. Both the echelons use a minimum mean squared error (MMSE) model for forecasting lead time demand (LTD), and follow an adaptive base-stock inventory policy to determine their respective order quantities. For the cases of without IS and inter as well as intra echelon IS, expressions for the bullwhip effect and on-hand inventory for the warehouse are obtained, considering deterministic lead-time. The results are compared with the previous research work and an easy analysis of the various bullwhip effect expressions under different scenarios, is done to understand the impact of IS on the bullwhip effect phenomenon. It is shown that some part of bullwhip effect will always remain even after sharing both inter as well as intra echelon information. Further, with the help of a numerical example it is shown that the lead time reduction is more beneficial in comparison to the sharing of information in terms of reduction in the bullwhip effect phenomenon.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 2 (January)
    Pages: 576-593

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:576-593

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Adaptive base-stock policy Minimum mean squared error (MMSE) forecasting model Information sharing (IS) Bullwhip effect;

    References

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    1. Stephen C. Graves, 1999. "A Single-Item Inventory Model for a Nonstationary Demand Process," Manufacturing & Service Operations Management, INFORMS, vol. 1(1), pages 50-61.
    2. Zhang, Xiaolong, 2004. "The impact of forecasting methods on the bullwhip effect," International Journal of Production Economics, Elsevier, vol. 88(1), pages 15-27, March.
    3. G. D. Johnson & H. E. Thompson, 1975. "Optimality of Myopic Inventory Policies for Certain Dependent Demand Processes," Management Science, INFORMS, vol. 21(11), pages 1303-1307, July.
    4. Stephen C. Graves, 1999. "Addendum to "A Single-Item Inventory Model for a Nonstationary Demand Process"," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 174-174.
    5. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    6. So, Kut C. & Zheng, Xiaona, 2003. "Impact of supplier's lead time and forecast demand updating on retailer's order quantity variability in a two-level supply chain," International Journal of Production Economics, Elsevier, vol. 86(2), pages 169-179, November.
    7. Srinivasan Raghunathan, 2001. "Information Sharing in a Supply Chain: A Note on its Value when Demand Is Nonstationary," Management Science, INFORMS, vol. 47(4), pages 605-610, April.
    8. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    9. Hau L. Lee & Kut C. So & Christopher S. Tang, 2000. "The Value of Information Sharing in a Two-Level Supply Chain," Management Science, INFORMS, vol. 46(5), pages 626-643, May.
    10. Kenneth Gilbert, 2005. "An ARIMA Supply Chain Model," Management Science, INFORMS, vol. 51(2), pages 305-310, February.
    11. Edward Ignall & Arthur F. Veinott, Jr., 1969. "Optimality of Myopic Inventory Policies for Several Substitute Products," Management Science, INFORMS, vol. 15(5), pages 284-304, January.
    12. Disney, S. M. & Towill, D. R., 2003. "On the bullwhip and inventory variance produced by an ordering policy," Omega, Elsevier, vol. 31(3), pages 157-167, June.
    13. Srinagesh Gavirneni & Roman Kapuscinski & Sridhar Tayur, 1999. "Value of Information in Capacitated Supply Chains," Management Science, INFORMS, vol. 45(1), pages 16-24, January.
    14. Raghunathan, Srinivasan, 2003. "Impact of demand correlation on the value of and incentives for information sharing in a supply chain," European Journal of Operational Research, Elsevier, vol. 146(3), pages 634-649, May.
    15. Disney, S. M. & Towill, D. R. & van de Velde, W., 2004. "Variance amplification and the golden ratio in production and inventory control," International Journal of Production Economics, Elsevier, vol. 90(3), pages 295-309, August.
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    Citations

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    Cited by:
    1. Zhu, Xiaowei & Mukhopadhyay, Samar K. & Yue, Xiaohang, 2011. "Role of forecast effort on supply chain profitability under various information sharing scenarios," International Journal of Production Economics, Elsevier, vol. 129(2), pages 284-291, February.
    2. Ciancimino, Elena & Cannella, Salvatore & Bruccoleri, Manfredi & Framinan, Jose M., 2012. "On the Bullwhip Avoidance Phase: The Synchronised Supply Chain," European Journal of Operational Research, Elsevier, vol. 221(1), pages 49-63.
    3. T. Saikouk & I. Zouaghi & A. Spalanzani, 2011. "Mitigating Supply Chain System Entropy by the Implementation of RFID," Post-Print halshs-00665653, HAL.
    4. Nepal, Bimal & Murat, Alper & Babu Chinnam, Ratna, 2012. "The bullwhip effect in capacitated supply chains with consideration for product life-cycle aspects," International Journal of Production Economics, Elsevier, vol. 136(2), pages 318-331.
    5. Chatfield, Dean C. & Pritchard, Alan M., 2013. "Returns and the bullwhip effect," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 159-175.
    6. Sarac, Aysegul & Absi, Nabil & Dauzère-Pérès, Stéphane, 2010. "A literature review on the impact of RFID technologies on supply chain management," International Journal of Production Economics, Elsevier, vol. 128(1), pages 77-95, November.
    7. Zbigniew Michna & Peter Nielsen, 2013. "The impact of lead time forecasting on the bullwhip effect," Papers 1309.7374, arXiv.org, revised Jun 2014.

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