Production and inventory control: The variability trade-off
Abstract
Much attention has recently been given to the bullwhip effect in supply chains. The bullwhip effect is a shorthand expression for the supply chain phenomenon where the variance of the orders placed on suppliers or production facilities increases as the orders flow upstream in the supply chain away from the marketplace. Bullwhip is costly to all members of the chain via excessive demands placed on capacity, inventory, and transportation. So there is a real cost benefit associated with effective bullwhip reduction. Bullwhip reduction may, however, have a negative impact on customer service due to inventory variance increases. Our analysis shows that bullwhip can be satisfactorily managed without increasing stock levels significantly, whilst maintaining target fill rates.