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Smooth is Smart.Bullwhip, Inventory, Fill-Rates and the Golden Ratio

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Listed:
  • S. Disney
  • I. Farasyn
  • M. Lambrecht
  • D. Towill
  • W. Van de Velde

Abstract

A major cause of supply chain deficiencies is the bullwhip effect. This effect refers to the tendency of the variance of the replenishment orders to increase as one moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyze a major cause of the bullwhip effect and suggest a remedy. We focus on a unique replenishment rule that is able to reduce the bullwhip effect. In general, bullwhip reduction may have a negative impact on customer service due to inventory variance increases. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates.

Suggested Citation

  • S. Disney & I. Farasyn & M. Lambrecht & D. Towill & W. Van de Velde, 2005. "Smooth is Smart.Bullwhip, Inventory, Fill-Rates and the Golden Ratio," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business, Review of Business and Economic Literature, vol. 0(2), pages 167-186.
  • Handle: RePEc:ete:revbec:20050201
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    References listed on IDEAS

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    1. Bovenberg, A. Lans & Graafland, Johan J. & de Mooij, Ruud A., 2000. "Tax reform and the Dutch labor market: an applied general equilibrium approach," Journal of Public Economics, Elsevier, pages 193-214.
    2. Donders, Jan & Graafland, Johan, 1998. "CPB models and employment policy in the Netherlands," Economic Modelling, Elsevier, vol. 15(3), pages 341-356, July.
    3. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
    4. Draper, D.A.G., 2000. "Towards an econometric model for the Netherlands : Explaining unemployment," Other publications TiSEM 8d6f0572-d552-4ca2-9df3-6, Tilburg University, School of Economics and Management.
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