Vendor managed inventory and bullwhip effect

This paper studies the bullwhip effect of order releases and shows that the amplifications of safety stock arise within the supply chain even when the demand model is ARIMA (0, 1, 1) and the forecast method used is a simple exponentially weighted moving average. It also examines a vendor managed inventory (VMI) program to determine how it can help alleviate such negative effects, and gives the theoretical proofs and numerical illustrations. The results show that the effects of VMI are better than the effect without VMI in demand forecasting and safety stock levels, etc.