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Behavioral Causes of the Bullwhip Effect and the Observed Value of Inventory Information

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Author Info

  • Rachel Croson

    () (Department of Operations and Information Management, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6366)

  • Karen Donohue

    () (Department of Operations and Management Science, The Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455-9940)

Abstract

The tendency of orders to increase in variability as one moves up a supply chain is commonly known as the bullwhip effect. We study this phenomenon from a behavioral perspective in the context of a simple, serial, supply chain subject to information lags and stochastic demand. We conduct two experiments on two different sets of participants. In the first, we find the bullwhip effect still exists when normal operational causes (e.g., batching, price fluctuations, demand estimation, etc.) are removed. The persistence of the bullwhip effect is explained to some extent by evidence that decision makers consistently underweight the supply line when making order decisions. In the second experiment, we find that the bullwhip, and the underlying tendency of underweighting, remains when information on inventory levels is shared. However, we observe that inventory information helps somewhat to alleviate the bullwhip effect by helping upstream chain members better anticipate and prepare for fluctuations in inventory needs downstream. These experimental results support the theoretically suggested notion that upstream chain members stand to gain the most from information-sharing initiatives.

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File URL: http://dx.doi.org/10.1287/mnsc.1050.0436
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 52 (2006)
Issue (Month): 3 (March)
Pages: 323-336

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Handle: RePEc:inm:ormnsc:v:52:y:2006:i:3:p:323-336

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Related research

Keywords: supply chain management; bullwhip effect; behavioral experiments; information sharing; dynamic decision making;

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Cited by:
  1. Cary Deck & Nikos Nikiforakis, 2012. "Perfect and imperfect real-time monitoring in a minimum-effort game," Experimental Economics, Springer, vol. 15(1), pages 71-88, March.
  2. Ding, Huiping & Guo, Baochun & Liu, Zhishuo, 2011. "Information sharing and profit allotment based on supply chain cooperation," International Journal of Production Economics, Elsevier, vol. 133(1), pages 70-79, September.
  3. Agarwal, Rajshree & Croson, Rachel & Mahoney, Joseph T., 2007. "Decision Making in Strategic Alliances: An Experimental Investigation," Working Papers 07-0108, University of Illinois at Urbana-Champaign, College of Business.
  4. Anne Coughlan & S. Choi & Wujin Chu & Charles Ingene & Sridhar Moorthy & V. Padmanabhan & Jagmohan Raju & David Soberman & Richard Staelin & Z. Zhang, 2010. "Marketing modeling reality and the realities of marketing modeling," Marketing Letters, Springer, vol. 21(3), pages 317-333, September.

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