The impact of vendor-managed inventory on the bullwhip effect in supply chains
Abstract
Compares a Vendor Managed Inventory (VMI) supply chain to a traditional “serially-linked” supply chain. The emphasis of this investigation is the impact the two structures have on the “Bullwhip Effect” generated in the supply chain. Particular attention is paid to the manufacturer’s production scheduling activities using simulation and difference equations. Each of the four sources of the Bullwhip Effect is considered. The analysis shows that with VMI two sources of the Bullwhip Effect are completely eliminated, i.e. Rationing and gaming or the Houlihan Effect and the order batching effect or the Burbidge Effect. VMI is also significantly better at responding to step changes in demand due to the Promotion Effect or price variations. The effect of VMI on demand signal processing or the Forrester Effect is however more ambiguous, contributing approximately the same amount of Bullwhip, but with half the amount of inventory holding. This paper concludes that VMI offers a significant opportunity to reduce the Bullwhip Effect in supply chains.