Centralized versus decentralized inventory control in supply chains and the bullwhip effect

Zhan Qu and Horst Raff

No 17/17, CEPIE Working Papers from Technische Universität Dresden, Center of Public and International Economics (CEPIE)

Abstract: This paper constructs a model of a supply chain to examine how demand volatility is passed upstream through the chain. In particular, we seek to determine how likely it is that the chain experiences a bullwhip effect, where the variance of the upstream firm's production exceeds the variance of the downstream firm's sales. We show that the bullwhip effect is more likely to occur and is greater in size in supply chains in which inventory control is centralized rather than decentralized, that is, exercised by the downstream firm.

Keywords: bullwhip effect; production smoothing; inventory; supply chain; volatility; stockout avoidance (search for similar items in EconPapers)
JEL-codes: D92 L14 L22 M11 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-bec and nep-ind
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https://www.econstor.eu/bitstream/10419/170529/1/1001188268.pdf (application/pdf)

Related works:
Working Paper: Centralized versus Decentralized Inventory Control in Supply Chains and the Bullwhip Effect (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tudcep:1717

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