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The Bullwhip Effect in Supply Networks

Author

Listed:
  • Nikolay Osadchiy

    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

  • William Schmidt

    (Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853)

  • Jing Wu

    (CUHK Business School, The Chinese University of Hong Kong, Hong Kong)

Abstract

We offer a new network perspective on one of the central topics in operations management—the bullwhip effect (BWE). The topic has both practical and scholarly implications. We start with an observation: the variability of orders placed to suppliers is larger than the variability of sales to customers for most firms, yet the aggregate demand variability felt by suppliers upstream does not amplify commensurably. We hypothesize that changes to the supplier’s customer base can smooth out its aggregate demand. We test the hypothesis with a data set that tracks the evolution of supply relationships over time. We show that the effect of customer base management extends beyond the statistical benefits of aggregation. In particular, both the formation and the dissolution of customer-supplier relationships are associated with the smoothing of the aggregate demand experienced by suppliers. This provides fresh insight into how firms may leverage their customer-supplier relationships to mitigate the impact of the BWE.

Suggested Citation

  • Nikolay Osadchiy & William Schmidt & Jing Wu, 2021. "The Bullwhip Effect in Supply Networks," Management Science, INFORMS, vol. 67(10), pages 6153-6173, October.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:10:p:6153-6173
    DOI: 10.1287/mnsc.2020.3824
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    References listed on IDEAS

    as
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