by Massachusetts Institute of Technology, Dept. of Economics in Cambridge, MA .
Written in English
A major cause of supply chain deficiencies is the bullwhip effect which can be substantial even over a single echelon. This effect refers to the tendency of the variance of the replenishment orders to increase as it moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyze a major cause of the bullwhip effect and suggest a remedy. We focus on a smoothing replenishment rule that is able to reduce the bullwhip effect across a single echelon. In general, dampening variability in orders may have a negative impact on customer service due to inventory variance increases. We therefore quantify the variance of the net stock and compute the required safety stock as a function of the smoothing required. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates. Keywords: Bullwhip effect, Supply chain management, Inventory management, Variance reduction.
|Series||Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 06-01, Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 06-01.|
|Contributions||Massachusetts Institute of Technology. Dept. of Economics|
|The Physical Object|
|Pagination||54 p. ;|
|Number of Pages||54|
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