Modeling and analysis of cash-flow bullwhip in supply chain

Rattachut Tangsucheeva and Vittaldas Prabhu

International Journal of Production Economics, 2013, vol. 145, issue 1, 431-447

Abstract: The bullwhip effect that occurs in supply chain inventory can distort demand forecasts and lead to inefficiencies such as excessive inventory, stock-outs, and backorders. In this paper we theorize that inventory bullwhip also leads to cash-flow bullwhip (CFB). Specifically, this paper focuses on studying CFB by developing mathematical and simulation models to analyze the relationship between inventory and cash-flow bullwhip by using Cash Conversion Cycle (CCC) as a metric. The mathematical models for inventory bullwhip are developed for two-stage and generic multi-stage supply chains, and then by extending these inventory models, the CFB models are developed for two-stage. CFB predicted by the proposed mathematical models approximately differ 14% from detailed simulation models. We find that increasing variability increases inventory and cash-flow bullwhip along with lead time, whereas increasing the demand observation period has the opposite effect. The average marginal impact of the bullwhip effect on the CFB is approximately 20%. Additionally, the CFB is also an increasing function of an expected value of inventory and a decreasing function of an expected value of demand.

Keywords: Supply chain; Bullwhip effect; Cash conversion cycle (CCC); Cash flow bullwhip (CFB); Inventory variance (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:145:y:2013:i:1:p:431-447

DOI: 10.1016/j.ijpe.2013.04.054

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