The Bullwhip Effect in Supply Networks

Nikolay Osadchiy (), William Schmidt () and Jing Wu ()
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Nikolay Osadchiy: Goizueta Business School, Emory University, Atlanta, Georgia 30322
William Schmidt: Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853
Jing Wu: CUHK Business School, The Chinese University of Hong Kong, Hong Kong

Management Science, 2021, vol. 67, issue 10, 6153-6173

Abstract: We offer a new network perspective on one of the central topics in operations management—the bullwhip effect (BWE). The topic has both practical and scholarly implications. We start with an observation: the variability of orders placed to suppliers is larger than the variability of sales to customers for most firms, yet the aggregate demand variability felt by suppliers upstream does not amplify commensurably. We hypothesize that changes to the supplier’s customer base can smooth out its aggregate demand. We test the hypothesis with a data set that tracks the evolution of supply relationships over time. We show that the effect of customer base management extends beyond the statistical benefits of aggregation. In particular, both the formation and the dissolution of customer-supplier relationships are associated with the smoothing of the aggregate demand experienced by suppliers. This provides fresh insight into how firms may leverage their customer-supplier relationships to mitigate the impact of the BWE.

Keywords: supply networks; bullwhip effect; demand variability (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:10:p:6153-6173

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