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Behavioral causes of the bullwhip effect: An analysis using linear control theory

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  • Maximiliano Udenio
  • Eleni Vatamidou
  • Jan C. Fransoo
  • Nico Dellaert

Abstract

It has long been recognized that the bullwhip effect in real life depends on a behavioral component. However, non-experimental research typically considers only structural causes in its analysis. In this article, we study the impact of behavioral biases on the performance of inventory/production systems modeled through an APVIOBPCS (Automatic Pipeline, Variable Inventory, Order-Based Production Control System) design using linear control theory. To explicitly model managerial behavior, we allow independent adjustments to inventory and pipeline feedback loops. We consider the biases of smoothing/over-reaction to inventory and pipeline mismatches and the under-/over-estimation of the pipeline. To quantify the performance of the system, we first develop a new procedure to determine the exact stability region of the system and we derive an asymptotic stability region that is independent of the lead time. Afterwards, we analyze the effect of different demand signals on order and inventory variations. Our findings suggest that normative policy recommendations must take demand structure explicitly into account. Finally, through extensive numerical experiments, we find that the performance of the system depends on the combination of the behavioral biases and the structure of the demand stream.

Suggested Citation

  • Maximiliano Udenio & Eleni Vatamidou & Jan C. Fransoo & Nico Dellaert, 2017. "Behavioral causes of the bullwhip effect: An analysis using linear control theory," IISE Transactions, Taylor & Francis Journals, vol. 49(10), pages 980-1000, October.
    • Handle: RePEc:taf:uiiexx:v:49:y:2017:i:10:p:980-1000
    DOI: 10.1080/24725854.2017.1325026
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    Cited by:

    1. Lin, Junyi & Huang, Hongfu & Li, Shanshan & Naim, Mohamed M., 2023. "On the dynamics of order pipeline inventory in a nonlinear order-up-to system," International Journal of Production Economics, Elsevier, vol. 266(C).
    2. Yang, Y. & Lin, J. & Hedenstierna, C.P.T. & Zhou, L., 2023. "The more the better? The impact of the number and location of product recovery options on the system dynamics in a closed-loop supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).
    3. Wellens, Arnoud P. & Boute, Robert N. & Udenio, Maximiliano, 2024. "Simplifying tree-based methods for retail sales forecasting with explanatory variables," European Journal of Operational Research, Elsevier, vol. 314(2), pages 523-539.
    4. Koussaila Hamiche & Michel Fliess & Cédric Join & Hassane Abouaïssa, 2019. "Bullwhip effect attenuation in supply chain management via control-theoretic tools and short-term forecasts: A preliminary study with an application to perishable inventories," Post-Print hal-02050480, HAL.
    5. Yongchang Wei & Fangyu Chen & Feng Xiong, 2018. "Dynamic Complexities in a Supply Chain System with Lateral Transshipments," Complexity, Hindawi, vol. 2018, pages 1-15, June.
    6. Yang, Y. & Lin, J. & Liu, G. & Zhou, L., 2021. "The behavioural causes of bullwhip effect in supply chains: A systematic literature review," International Journal of Production Economics, Elsevier, vol. 236(C).
    7. Lin, Junyi & Naim, Mohamed M. & Tang, Ou, 2024. "In-house or outsourcing? The impact of remanufacturing strategies on the dynamics of component remanufacturing systems under lifecycle demand and returns," European Journal of Operational Research, Elsevier, vol. 315(3), pages 965-979.
    8. Lin, Junyi & Zhou, Li & Spiegler, Virginia L.M. & Naim, Mohamed M. & Syntetos, Aris, 2022. "Push or Pull? The impact of ordering policy choice on the dynamics of a hybrid closed-loop supply chain," European Journal of Operational Research, Elsevier, vol. 300(1), pages 282-295.
    9. Udenio, Maximiliano & Vatamidou, Eleni & Fransoo, Jan C., 2023. "Exponential smoothing forecasts: Taming the Bullwhip Effect when demand is seasonal," Other publications TiSEM 8fca6329-83b9-4a49-a2aa-e, Tilburg University, School of Economics and Management.

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