Supply Chain Management- Cracking the Bullwhip Effect an Approach Paper

Total Page:16

File Type:pdf, Size:1020Kb

Load more

______________________________________________________________________________ Supply Chain Management- Cracking the bullwhip effect An Approach Paper By Paritosh Agarwal ________________________________________________________________________________ Page 1 of 18 ______________________________________________________________________________ Table of Contents TABLE OF CONTENTS .....................................................................................................................................2 1. INTRODUCTION.........................................................................................................................................3 2. WHAT IS BULLWHIP EFFECT? ..............................................................................................................4 3. THE BEER GAME......................................................................................................................................6 4. CAUSES OF BULLWHIP EFFECT.........................................................................................................11 5. IMPACT OF BULLWHIP EFFECT..........................................................................................................13 6. CRACKING THE BULLWHIP EFFECT..................................................................................................14 7. THE BULLWHIP EFFECT AND ITS IMPACT ON SUPPLY CHAIN ...................................................15 8. CONCLUSION..........................................................................................................................................17 9. REFERENCE ............................................................................................................................................18 ________________________________________________________________________________ Page 2 of 18 ______________________________________________________________________________ 1. Introduction Fluctuations in demand vary significantly between industries. The apparel industry, for example, is subject to major demand adjustments driven by business cycles and seasonality, while the diaper market enjoys relatively consistent demand. One would expect players in various retail supply chains to frequently misjudge demand, causing shortages or inventory surpluses at different stages in the chain. But given the consistency in diaper demand, shouldn’t the diaper supply chain be more accurate and efficient? Yes – it should. But it isn’t. Even industries with reliable demand patterns waste millions of dollars each year because they aren’t able to match production to demand. A major cause of supply chain inefficiency has been dubbed the “bullwhip effect”. ________________________________________________________________________________ Page 3 of 18 ______________________________________________________________________________ 2. What is Bullwhip Effect? Even industries with reliable demand patterns waste millions of dollars each year because they aren’t able to match production to demand. A major cause of supply chain inefficiency has been dubbed the “bullwhip effect”. Proctor & Gamble coined the term “bullwhip effect” by studying the demand fluctuations for Pampers (disposable diapers). This is a classic example of a product with very little consumer demand fluctuation. P&G observed that distributor orders to the factory varied far more than the preceding retail demand. P & G orders to their material suppliers fluctuated even more. Babies use diapers at a very predictable rate, and retail sales resemble this fact. Information is readily available concerning the number of babies in all stages of diaper wearing. Even so P&G observed that this product with uniform demand created a wave of changes up the supply chain due to very minor changes in demand. Fig 1 ________________________________________________________________________________ Page 4 of 18 ______________________________________________________________________________ Fig 2 The graphical representations above show the bullwhip effect between two supply chain partners. It can be seen that the Distributor orders to the factory experience demand fluctuate far more drastically than the retail demand. Over time as the Distributor builds inventory and fulfills orders, it communicates very different demand levels to the upstream factory by the order amounts it requests. This becomes more complicated the farther up the supply chain we go. The bullwhip effect describes how inaccurate information, a lack of transparency throughout the supply chain, and a disconnect between production and real-time supply chain information result in lost revenue, bad customer service, high inventory levels and unrealized profits. As information (usually forecast data) is passed down the supply chain, most participants only have access to data from businesses either directly above or directly below them. In industries where the entire supply chain can consist of numerous layers, this means that the majority of the information that managers use to make decisions is localized to only a few participants and hidden from those further up or downstream. Without a clear view of end-user demand, companies must rely on only that information they have access to. Unfortunately, this information is often distorted by multiple layers of forecasts and transactions. This principal is easily demonstrated through an exercise often conducted in business schools called the beer game. ________________________________________________________________________________ Page 5 of 18 ______________________________________________________________________________ 3. The Beer Game The beer game was developed at MIT by the Systems Dynamic Group in the 1960s. The game involves a simple production/distribution system for a single brand of beer. There are three players in the game including a retailer, a wholesaler, and a marketing director at the brewery. Each player's goal is to maximize profit. A truck driver delivers beer once each week to the retailer. Then the retailer places an order with the trucker who returns the order to the wholesaler. There's a four week lag between ordering and receiving the beer. The retailer and wholesaler do not communicate directly. The retailer sells hundreds of products and the wholesaler distributes many products to a large number of customers. The following represents the results of a typical beer game:- 3.1 The Retailer Week 1: Lover's Beer is not very popular but the retailer sells four cases per week on average. Because the lead time is four weeks, the retailer attempts to keep twelve cases in the store by ordering four cases each Monday when the trucker makes a delivery. Week 2: The retailer's sales of Lover's beer doubles to eight cases, so on Monday, he orders 8 cases. Week 3: The retailer sells 8 cases. The trucker delivers four cases. To be safe, the retailer decides to order 12 cases of Lover's beer. Week 4: The retailer learns from some of his younger customers that a music video appearing on TV shows a group singing "I'll take on last sip of Lover's beer and run into the sun." The retailer assumes that this explains the increased demand for the product. The trucker delivers 5 cases. The retailer is nearly sold out, so he orders 16 cases. Week 5: The retailer sells the last case, but receives 7 cases. All 7 cases are sold by the end of the week. So again on Monday the retailer orders 16 cases. Week 6: Customers are looking for Lover's beer. Some put their names on a list to be called when the beer comes in. The trucker delivers only 6 cases and all are sold by the weekend. The retailer orders another 16 cases. Week 7: The trucker delivers 7 cases. The retailer is frustrated, but orders another 16 cases. Week 8: The trucker delivers 5 cases and tells the retailer the beer is backlogged. The retailer is really getting irritated with the wholesaler, but orders 24 cases. 3.2 The Wholesaler The wholesaler distributes many brands of beer to a large number of retailers, but he is the only distributor of Lover's beer. The wholesaler orders 4 truckloads from the brewery truck driver each week and receives the beer after a 4 week lag. The wholesaler's policy is to keep 12 truckloads in inventory on a continuous basis. Week 6: By week 6 the wholesaler is out of Lover's beer and responds by ordering 30 truckloads from the brewery. Week 8: By the 8th week most stores are ordering 3 or 4 times more Lovers' beer than their regular amounts. ________________________________________________________________________________ Page 6 of 18 ______________________________________________________________________________ Week 9: The wholesaler orders more Lover's beer, but gets only 6 truckloads. Week 10: Only 8 truckloads are delivered, so the wholesaler orders 40. Week 11: Only 12 truckloads are received, and there are 77 truckloads in backlog, so the wholesaler orders 40 more truckloads. Week 12: The wholesaler orders 60 more truckloads of Lover's beer. It appears that the beer is becoming more popular from week to week. Week 13: There is still a huge backlog. Weeks 14-15: The wholesaler receives larger shipments from the brewery, but orders from retailers begin to drop off. Week 16: The trucker delivers 55 truckloads from the brewery, but the wholesaler gets zero orders from retailers. So he stops ordering from the brewery. Week 17: The wholesaler receives another 60 truckloads. Retailers order zero. The wholesaler orders zero. The brewery keeps sending beer. 3.3
Recommended publications
  • The Bullwhip Effect Phenomenon in Automotive Supply Chains in JA Badenhorst-Weiss South Africa

    The Bullwhip Effect Phenomenon in Automotive Supply Chains in JA Badenhorst-Weiss South Africa

    MJ Naude The bullwhip effect phenomenon in automotive supply chains in JA Badenhorst-Weiss South Africa THE BULLWHIP EFFECT PHENOMENON IN AUTOMOTIVE SUPPLY CHAINS IN SOUTH AFRICA M.J. Naude: University of KwaZulu-Natal J.A. Badenhorst-Weiss: University of South Africa Purpose: The purpose of the article is to report on research that was completed to explore the concept of the bullwhip effect in supply chains and to illustrate empirically the presence of the bullwhip effect in automotive supply chains in South Africa. Problem Investigated: This article investigates the presence of the bullwhip effect – which was identified through an empirical study – and its causes and implications for supply chain management in the South African automotive component industry. Methodology: A literature study was conducted on the causes and implications of the bullwhip effect phenomenon. This was followed by an empirical study in the form of a survey among South African automotive component manufacturers. Descriptive and inferential statistics were used to determine the significant supply chain problems relating to the bullwhip effect in automotive supply chains. Findings and Implications: The results indicate that automotive component manufacturers are dependent on demand-forecasting information from their customers. They experience long lead times, fluctuating orders, cancellation of orders, excess and slow moving inventory and a lack of integration with suppliers and customers. There are also signs of relationship problems and a possible silo mentality. The mentioned results indicate the presence of the bullwhip effect in South African automotive supply chains. Since the bullwhip effect can have a major impact on organisations’ costs, knowing where to invest effort and resources should be a high priority for supply chain managers.
  • An Analytical Investigation of the Bullwhip Effect Production and Operations Management 13(2), Pp

    An Analytical Investigation of the Bullwhip Effect Production and Operations Management 13(2), Pp

    PRODUCTION AND OPERATIONS MANAGEMENT POMS Vol. 13, No. 2, Summer 2004, pp. 150–160 issn 1059-1478 ͉ 04 ͉ 1302 ͉ 150$1.25 © 2004 Production and Operations Management Society An Analytical Investigation of the Bullwhip Effect Roger D. H. Warburton University of Massachusetts, Dartmouth, North Dartmouth, Massachusetts 02747, USA [email protected] he Bullwhip Effect is problematic: order variability increases as orders propagate along the supply Tchain. The fundamental differential delay equations for a retailer’s inventory reacting to a surge in demand are solved exactly. Much of the rich and complex inventory behavior is determined by the replenishment delay. The analytical solutions agree with numerical integrations and previous control theory results. Managerially useful ordering strategies are proposed. Exact expressions are derived for the retailer’s orders to the manufacturer, and the Bullwhip Effect arises naturally. The approach is quite general and applicable to a wide variety of supply chain problems. Key words: Bullwhip Effect; supply chain management; ordering policy Submissions and Acceptance: Received March 2002; revisions received November 2002 and May 2003; accepted October 2003 by Seungjin Wang. 1. Introduction Parker (2000) suggest the amplification of demand vol- Lee, Padmanabhan, and Whang (1997a) and Lee, So, and atility is particularly large in distribution and component Tang (2000) popularized the term “Bullwhip Effect,” parts supply chains, e.g., machine tools. Johnson and where a retailer’s orders to their suppliers tend to have a Whang (2002) survey emerging research on the impact larger variance than the consumer demand that trig- of e-business on supply chains. gered the orders.
  • Demand Driven Material Requirements Planning

    Demand Driven Material Requirements Planning

    School of Innovation, Design and Engineering Demand Driven Material Requirements Planning Master thesis work 30 credits, Advanced level Product and process development Production and Logistics Arakatla Adarsh Report code: xxxx Commissioned by: Tutor (university): Yuji Yamamoto Examiner: ABSTRACT Manufacturing industries used to develop their operation strategies focusing on cost of manufacturing, high volume production and stabilizing the customer demand. But due to advancements in technology and evolving customer needs, the market demand became highly volatile, dynamic and customers expected customization, low volume products and faster deliveries. This evolution in customer needs has pushed the companies to improve their operating systems to be more flexible, agile and adaptable to market’s dynamic character. In order to effectively evolves themselves and achieve more flexibility, manufacturing companies had to implement effective manufacturing, planning and control systems. The first break through in planning systems came in the year 1975 where a systemic approach called material requirements planning was introduced by Orlicky. MRP has become the global for production planning and inventory management in manufacturing industries. Later, over the years, research on the planning systems has brough modifications in MRP and it was evolved into closed loop MRP. Further into late 1980’s availability of technology led to an introduction of new evolved system called the Manufacturing resource planning which resulted in a holistic approach in material planning involving, financial and accounting functions which improved the planning efficiency. Further advancement in technology resulted in advanced planning systems like Enterprise resource planning and Advanced planning and scheduling. On the contrary, though there has been a lot of advancement in technology and effective production planning methods, there are still discrepancies in obtained results when compared to theory.
  • Impact of Bullwhip Effect in Quality and Waste in Perishable Supply Chain

    Impact of Bullwhip Effect in Quality and Waste in Perishable Supply Chain

    processes Review Impact of Bullwhip Effect in Quality and Waste in Perishable Supply Chain Julián Andrés Durán Peña 1,* , Ángel Ortiz Bas 1,* and Nydia Marcela Reyes Maldonado 2,* 1 Research Centre on Production Management and Engineering CIGIP, Camino de Vera s/n, 46022 Valencia, Spain 2 Department of Accounting, Autonomous University of Bucaramanga, Avenida 42 48-11, Bucaramanga 680003, Colombia * Correspondence: [email protected] (J.A.D.P.); [email protected] (Á.O.B.); [email protected] (N.M.R.M.) Abstract: The bullwhip effect results from inefficiencies in the supply chain; in perishable products, the inefficiencies are quality in the supply chain and product waste. We carried out a literature review to determine the causes of the bullwhip effect and the supply chain’s quality factors of this phenomenon’s perishable products. Update the demand, the level of deterioration of the product, and the number of intermediaries is the causes of the bullwhip effect most investigated. On the other hand, the product’s safety and the quality of the information are the quality factors of the chain of supplies of perishable products more researched. Future research should address the causes of human behavior that affect the bullwhip effect in the perishable goods supply chain. Keywords: bullwhip effect; perishable supply chain; quality; waste Citation: Durán Peña, J.A.; Ortiz Bas, Á.; Reyes Maldonado, N.M. Impact of 1. Introduction Bullwhip Effect in Quality and Waste The supply chain connects customers with distributors, manufacturers, and suppliers. in Perishable Supply Chain. Processes During this process, their decisions increase or decrease the cost of operation and service 2021, 9, 1232.
  • How Rfid Technology Boosts Walmart's Supply Chain Management

    How Rfid Technology Boosts Walmart's Supply Chain Management

    International Journal of Information Technology and Business Management 29th April 2014. Vol.24 No.1 © 2012 – 2014 JITBM & ARF. All rights reserved ISSN 2304-0777 www.jitbm.com HOW RFID TECHNOLOGY BOOSTS WALMART’S SUPPLY CHAIN MANAGEMENT Sandy Kosasi, SE, MM, M.Kom1, Dr. Hoga Saragih, ST, MT2 STMIK Pontianak1 & Bakrie University2 Email: [email protected] & [email protected] Abstract Purpose – The role of RFID technologies in supply chain management have gained significant interest in researchers and academics in recent years. Yet, very few studies conductedonhow this technologycould boost supply chains. So this study was to scrutinize how RFID technology boosts Wal-Mart’s supply chain management. Design/methodology/approach – Exploratory research approachwas adopted to obtain an in- depth understanding of RFID technology andsupply chain through related journals and literatures.Then the research was conducted in the form of case studies on RFID technology and Wal-Mart’s supply chain management practices. In general, the research is more descriptive and interpretive in nature. Findings –Wal- Mart succeeded in adopting the RFID technology, reduced out-of-stocks and the bullwhip effect, reduction in manual orders resulting in a reduction of excess inventory, improved service levels and reduced administration costs. Originality/value – The paper is original that provides empirical supportto RFID and SCM implementation, and creates value for retail stores on managing inventory. Keyword: RFID, SCM, Bullwhip Effect, VMI, CPFR INTRODUCTION Most retail stores are facing inventory problems Using tags, readers and radio waves to because of bullwhip effects and the lack of real- communicate between the two, RFID combined time product and data for retail stores.
  • How to Manage the Bullwhip Effect in the Supply Chain: a Case Study on Chinese Haier Group

    How to Manage the Bullwhip Effect in the Supply Chain: a Case Study on Chinese Haier Group

    How to manage the bullwhip effect in the supply chain: A case study on Chinese Haier Group Yi Xiao, [email protected] Ronghe Peng, [email protected] 2013 Student thesis, Bachelor, 15 HE Industrial engineering and management Bachelor Program in Industrial Management and logistics Abstract This thesis intended to increase the understanding of bullwhip effect in electrical appliance industry in the Chinese market. In the supply chain management, the bullwhip effect is a phenomenon can never be ignored. The bullwhip effect has being defined as information distortion when orders move form downstream enterprises to the supplier (Lee et al 1997b). The distortion information was amplified step by step, and finally propagates to the enterprise marketing, logistics, manufacture and other fields. The existence of the bullwhip effect weakens the ability to add value and competitiveness of the supply chain. Hence, enterprises must collaborate and jointly mitigate the bullwhip effect to reach groups coexist. This work focus on the electrical appliance industry in China, and based on the successful experience of the case company, Haier Group, to formulate recommendations. Firstly, this research analysis the four causes of the bullwhip effect: demand forecast, price fluctuations, order quantity and short game (Lee et al 1997a). After analyze these causes, this study begins to identify the impacts which the bullwhip effect bring to the members of supply chains. The most obvious impacts can be defined as inaccurate forecasting, inadequate customer service and high inventory cost. Next, the paper evaluate the measures of Haier implement to dampen the bullwhip effect. Information sharing, the key point to solve the problem has been use in Haier.
  • In Search of the Bullwhip Effect

    In Search of the Bullwhip Effect

    University of Pennsylvania ScholarlyCommons Operations, Information and Decisions Papers Wharton Faculty Research 2007 In Search of the Bullwhip Effect Gerard. P. Cachon University of Pennsylvania Taylor Randall Glen M. Schmidt Follow this and additional works at: https://repository.upenn.edu/oid_papers Part of the Operations and Supply Chain Management Commons, Other Business Commons, Other Economics Commons, and the Sales and Merchandising Commons Recommended Citation Cachon, G. P., Randall, T., & Schmidt, G. M. (2007). In Search of the Bullwhip Effect. Manufacturing & Service Operations Management, 9 (4), 457-479. http://dx.doi.org/10.1287/msom.1060.0149 This paper is posted at ScholarlyCommons. https://repository.upenn.edu/oid_papers/137 For more information, please contact [email protected]. In Search of the Bullwhip Effect Abstract The bullwhip effect is the phenomenon of increasing demand variability in the supply chain from downstream echelons (retail) to upstream echelons (manufacturing). The objective of this study is to document the strength of the bullwhip effect in industry-level U.S. data. In particular, we say an industry exhibits the bullwhip effect if the variance of the inflow of material ot the industry (what macroeconomists often refer to as the variance of an industry's “production”) is greater than the variance of the industry's sales. We find that wholesale industries exhibit a bullwhip effect, but retail industries generally do not exhibit the effect, nor do most manufacturing industries. Furthermore, we observe that manufacturing industries do not have substantially greater demand volatility than retail industries. Based on theoretical explanations for observing or not observing demand amplification, we are able to explain a substantial portion of the heterogeneity in the degree to which industries exhibit the bullwhip effect.
  • Inventory Dynamics and the Bullwhip Effect : Studies in Supply Chain Performance

    Inventory Dynamics and the Bullwhip Effect : Studies in Supply Chain Performance

    Inventory dynamics and the bullwhip effect : studies in supply chain performance Citation for published version (APA): Udenio, M. (2014). Inventory dynamics and the bullwhip effect : studies in supply chain performance. Technische Universiteit Eindhoven. https://doi.org/10.6100/IR776508 DOI: 10.6100/IR776508 Document status and date: Published: 01/01/2014 Document Version: Publisher’s PDF, also known as Version of Record (includes final page, issue and volume numbers) Please check the document version of this publication: • A submitted manuscript is the version of the article upon submission and before peer-review. There can be important differences between the submitted version and the official published version of record. People interested in the research are advised to contact the author for the final version of the publication, or visit the DOI to the publisher's website. • The final author version and the galley proof are versions of the publication after peer review. • The final published version features the final layout of the paper including the volume, issue and page numbers. Link to publication General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal.
  • Joseph Elias Al-Ammar Implementation of a Mix DDMRP

    Joseph Elias Al-Ammar Implementation of a Mix DDMRP

    THESIS OF EXECUTIVE DOCTORATE IN BUSINESS ADMINISTRATION OF PARIS DAUPHINE UNIVERSITY – FRANCE AND SAINT JOSEPH UNIVERSITY IN BEIRUT – LEBANON Joseph Elias Al-Ammar Implementation of a Mix DDMRP-Kanban Supply Chain System within a multi-product industrial company: Case of Liban Cables SAL EDBA Thesis Director: Mr. Régis BOURBONNAIS Maître de Conférence HDR – Université de Paris-Dauphine Directeur du Master Supply Chain Internationale November 2018 Acknowledgment Acknowledgment I would like to dedicate this paper to my father. This achievement is as much your work as it is mine, without your constant reminders, encouragement and persistence to enroll in a doctoral program, I probably wouldn’t have followed this path in the first place. Thank you for believing in me and pushing me always to challenging paths. I would like to thank my family, my mother, my two sisters, and my brother, for their encouragements, and support. To my EDBA colleagues, who became very dear friends, this experience allowed us all to explore who we are, meet new friends, and broaden our horizons. Thank you for sharing all aspects of this experience, the anxieties, the difficulties, the fun and excitements, and mostly for your availability, advices, and care. A special thanks to my thesis director, your guidance and motivation throughout this paper, as well as your validation of the innovative aspect of this subject, offered me with the vital motivation and confidence to advance and finish this work. A final thanks to the professors and staff of Saint Joseph University and Paris Dauphine University, for the help and support, as well as encouragement and availability, offered throughout the time of this work.
  • An Empirical Study on Factors Responsible for Bullwhip Effect in Soya Oil Manufacturing Sector

    An Empirical Study on Factors Responsible for Bullwhip Effect in Soya Oil Manufacturing Sector

    IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 19, Issue 6. Ver. VI (June 2017), PP 09-13 www.iosrjournals.org An Empirical Study on Factors Responsible for Bullwhip Effect in Soya Oil Manufacturing Sector Dr. Shweta Mogre1, Dr. V.K. Jain2, Dr. P.K. Jain3 1Associate Professor, Pioneer Institute of Professional Studies, Indore, India 2 Professor and Dean, Mody University of Science and Technology, Lakshmangarh, India 3 Professor and Principal, Pioneer Institute of Professional Studies, Indore, India Abstract: Order variability increases as the orders move upstream in the supply chain. This phenomenon is known as the bullwhip effect. There are several causes due to which this effect occurs. In this paper, we tried to identify the causes which are responsible for Bullwhip Effect in Soya Oil Manufacturing Sector of Indore region and suggested some strategies for reducing the Bullwhip Effect. Key Words: Bullwhip Effect, Order variability, Supply Chain I. Introduction Today most of manufacturing industries are passing through a phase of very tough competition due to globalization, product variety and technological breakthroughs. In Present scenario, customers desire better quality, design, innovation, choice, convenience and service on a cheaper price and effort. In such a situation making optimal decision under uncertain conditions is a challenging job for industries. In industries, the supply chain consists of so many layers but managers make decisions on the basis of localized information and decisions are hidden from other members of the chain. This creates information distortion; the gap between the forecast and reality is large and leads to product shortfalls or inventory excess.
  • The Issue of Bullwhip-Effect Evaluating in Supply Chain Management

    The Issue of Bullwhip-Effect Evaluating in Supply Chain Management

    LogForum 2018, 14 (2), 163-170 > Scientific Journal of Logistics < http://dx.doi.org/10.17270/J.LOG.2018.280 http://www.logforum.net p-ISSN 1895-2038 e-ISSN 1734-459X ORIGINAL PAPER THE ISSUE OF BULLWHIP-EFFECT EVALUATING IN SUPPLY CHAIN MANAGEMENT Anna Vokhmyanina 1, Marina Zhuravskaya 1, Waldemar Osmólski 2 1) The Ural State University of Railway Transport, Yekaterinburg, Russia , 2) Institute of Logistics and Warehousing, Poznan, Poland ABSTRACT . Background : This article deals with the quantitative evaluation of the bullwhip effect in supply chains. A literature review was carried out and it was revealed that there is no general approach to quantifying the bullwhip effect. In the article, a more precise concept of the bullwhip effect is proposed from the point of view of the natural- scientific approach. Methods: A methodology for quantifying the bullwhip effect as a coefficient of linear regression was developed, characterising the dependence on the location of a link in supply chains, which can be used to adjust its operational work. Results: The stability of the proposed model is confirmed by the results of its implementation in production in several sectors of the economy, distinguished by the number of units and number of study periods, which demonstrates its potential for use in the distribution system. Conclusions: The main reason for the existence of the bullwhip effect is the unreliability of forecasts, which ultimately reduces the efficiency of inventory planning in supply chains and extensive logistics systems. Reducing the negative impact of the bullwhip effect can be achieved by using more advanced forecasting models and the quantitative assessment method used in this study, to adjust reserve stocks in supply chain links.
  • Incorporating Buyer Behavior to Drive Supply Chain Operations

    Incorporating Buyer Behavior to Drive Supply Chain Operations

    Incorporating Buyer Behavior to Drive Supply Chain Operations by NIHAT ALTINTAS Submitted to the Tepper School of Business in Partial Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY at the CARNEGIE MELLON UNIVERSITY April 2006 c Carnegie Mellon University 2006 Thesis Committee Professor Sridhar Tayur (co-chair) Professor Michael Trick (co-chair) Professor Sunder Kekre Professor Alan Montgomery (outside reader) Abstract Exogenous demand assumptions provide accurate results at the retail level. As we go in the supply chain, the orders of the buyers get more complicated. The orders are influenced by both the decisions of the supplier and the costs of the buyer’s operations. Therefore, it is critical for a supplier to understand the ordering behavior of a buyer in order to manage her operations. We consider a two-stage supply chain where the buyer faces a stationary and stochastic demand from his customers. The buyer places an order to maximize his profits. We provide a theoretical and empirical framework to analyze the buyer behavior. We study two practical problems: design of quantity discounts and handling reported forecasts. Our goal is to improve the supplier’s operations through a better understanding of the buyer’s ordering behavior. In the first part, we study an all-unit quantity discount problem under stochastic de- mand for a single-item in a single supplier, single buyer setting. First, we analyze the buyer’s problem. For a single period, we derive the buyer’s optimal policy, which we call a three-index policy. We investigate the structure of the optimal policy for the infinite hori- zon problem and show that higher index policies with complex order structures may turn out to be optimal.