Quantifying the effect of batch size and order errors on the bullwhip effect using simulation

Quantifying the effect of batch size and order errors on the bullwhip effect using simulation

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Article ID: iaor2005839
Country: United Kingdom
Volume: 7
Issue: 3
Start Page Number: 251
End Page Number: 261
Publication Date: Sep 2004
Journal: International Journal of Logistics
Authors: ,
Keywords: bullwhip effect, supply chain
Abstract:

The bullwhip effect is the observed amplification in order-size variance for upstream nodes in a supply chain. Lee et al. identified four causes for a single-product demand: (1) nodes updating their forecasts independently; (2) order batching; (3) price fluctuations; and (4) rationing. Chen et al. provided a lower bound of the impact of the first cause. We contribute by quantifying the impact of the other three causes individually through simulation. We require any order to be an integer multiple of the batch size and posit price fluctuations and rationing as causing random independent identically distributed errors or deviations from the optimal order size. We find with high R2 that the increase in order variance over a “core” order variance (when none of the four causes is pressent) is directly proportional to the square of the batch size and to the variance of the order deviations.

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