Information distortion in a supply chain: The bullwhip effect

Information distortion in a supply chain: The bullwhip effect

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Article ID: iaor19982239
Country: United States
Volume: 43
Issue: 4
Start Page Number: 546
End Page Number: 558
Publication Date: Apr 1997
Journal: Management Science
Authors: , ,
Keywords: information, inventory, management
Abstract:

Consider a series of companies in a supply chain, each of whom orders from its immediate upstream member. In this setting, inbound orders from a downstream member service as a valuable informational input to upstream production and inventory decisions. This paper claims that the information transferred in the form of ‘orders’ tends to be distorted and can misguide upstream members in their inventory and production decisions. In particular, the variance of orders may be larger than that of sales, and the distortion tends to oncrfease as one moves upstream – a phenomenon termed ‘bullwhip effect.’ This paper analyzes four sources of the bullwhip effect: demand signal processing, rationing game, order batching, and price variations. Actions that can be taken to mitigate the detrimental impact of this distortion are also discussed.

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