The bullwhip effect in capacitated supply chains with consideration for product life-cycle aspects

This paper presents an analysis of the bullwhip effect and net‐stock amplification in a three‐echelon supply chain considering step‐changes in the production rates during a product's life‐cycle demand. The analysis is focused around highly complex and engineered products (e.g., automobiles), that have relatively long production life‐cycles and require significant capital investment in manufacturing. Using a simulation approach, we analyze three stages of the product life‐cycle including low volumes during product introduction, peak demand, and eventual decline toward the end of the life‐cycle. Parts of the simulation model have been adopted by a major North‐American automotive OEM as part of a scenario analysis tool for strategic supply network design and analysis. The simulation results show that performance of a system as a whole deteriorates when there is a step‐change in the life‐cycle demand. While restriction in production capacity does not significantly impact the bullwhip effect, it increases the net stock amplification significantly for the supply chain setting under consideration. Furthermore, a number of important managerial insights are presented based on sensitivity analysis of interaction effect of capacity constraints with other supply chain parameters.