Smooth is Smart.Bullwhip, Inventory, Fill-Rates and the Golden Ratio

S. Disney, I. Farasyn, M. Lambrecht, D. Towill and W. Van de Velde

Review of Business and Economic Literature, 2005, vol. L, issue 2, 167-186

Abstract: A major cause of supply chain deficiencies is the bullwhip effect. This effect refers to the tendency of the variance of the replenishment orders to increase as one 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 unique replenishment rule that is able to reduce the bullwhip effect. In general, bullwhip reduction may have a negative impact on customer service due to inventory variance increases. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:ete:revbec:20050201

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