Supply Chain Management: Issues and Models Lecture 4: Bullwhip Effect

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Supply Chain ManagementIssues and
ModelsLecture 4 Bullwhip Effect

• Prof. Dr. Jinxing Xie
• Department of Mathematical Sciences
• Tsinghua University, Beijing 100084, China
• http//faculty.math.tsinghua.edu.cn/jxie
• Email jxie_at_ math.tsinghua.edu.cn
• Voice (86-10)62787812 Fax [phone]
• Office Rm. 1308, New Science Building

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Amplified Demand Distortion (the Bullwhip
Effects)
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Four sources of the bullwhip effect Demand
signal processing Rationing game Order
batching Price variation
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Bullwhip Effect An Analytical Model
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Bullwhip effect
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Events in each period
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Variables
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Demand Process
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Results for demand signal processing
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Optimal order-up-to level
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Optimal order quantity
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Amplification of order variance
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Summary

Bullwhip effect exists even when the leadtime is
zero Other causes of bullwhip effects omitted
here Sharing information is needed?
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Information sharingValue of information
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Basic Assumptions

• The demand is assumed to be a simple
  autocorrelated AR(1) process
• 
  (2.1)
• d gt 0, -1lt?lt1, and ? is i.i.d. normally
  distributed with mean zero and variance ?2.
• ?ltlt d

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Leadtimes
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Retailers ordering decision process
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Manufacturers decision
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Retailers Leadtime Demand

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Retailers Leadtime Demand
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Retailers Ordering Decision
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For manufacturer
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Manufacturers leadtime demand

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Manufacturers leadtime demand No information
sharing

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Manufacturers order-up-to level No information
sharing
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Manufacturers leadtime demand information
sharing
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Manufacturers order-up-to level information
sharing
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Benefits of information sharing

• Comparing (3.10) with (3.13), one can quantify
  the benefits of information sharing
• Inventory level
• Cost evaluation

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Similar methods can be used to

• Analyze the case when forecasting is used
• Raghunathan S. Information sharing in a supply
  chain a note on its value when demand is
  non-stationary. Management Science, April 2001,
  605-610.
• Analyze the value of advance demand information
  (the value of time)
• Zhao X., Xie J. and Wei J. The Impact of Early
  Order Commitment on the Performance of a Simple
  Supply Chain. Working paper, 2002, Chinese
  University of Hong Kong.