Distributor-managed inventory: a way to manage the Bullwhip Effect

Supply Chain Management covers some of the more complex problems in modern management and represents topics for a growing research interest. This paper will focus on a specific business context, the fine paper markets in Europe and the actors working with supply chain management for the distribution of fine paper products to end-customers. The Bullwhip Effect, which appears to grow from rational planning and decision making on the part of the supply chain actors, turns out to hamper the efforts of an effective supply chain management: it creates excessive inventories, a poor response to changing demand and unnecessary rush orders. In this paper, we will work out some ways to counteract and manage the Bullwhip Effect: a Distributor Managed Inventory (DMI) policy and show that this policy can be managed optimally with some optimisation models. The results are verified with a series of simulation experiments in a theoretic setting.