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

Author

Listed:
  • Frank Chen

    (Decision Sciences Department, National University of Singapore, 119260 Singapore)

  • Zvi Drezner

    (Department of MS ... IS, California State University, Fullerton, California 92834)

  • Jennifer K. Ryan

    (School of Industrial Engineering, Purdue University, West Lafayette, Indiana 47907)

  • David Simchi-Levi

    (Department of IE ... MS, Northwestern University, Evanston, Illinois 60208)

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:3:p:436-443
    DOI: 10.1287/mnsc.46.3.436.12069
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    References listed on IDEAS

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    3. John D. Sterman, 1989. "Modeling Managerial Behavior: Misperceptions of Feedback in a Dynamic Decision Making Experiment," Management Science, INFORMS, vol. 35(3), pages 321-339, March.
    4. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-679, September.
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