Distortional Bullwhip Effects on carriers

This paper analyzes the Bullwhip Effect (BWE) problem from the (carriers’) viewpoint. The analysis explores how retailer’s limited capability to forecast end-customer demand and their sub-optimal replenishment policies distort service demand signals to carriers. The consequent unnecessary increases in carriers’ capacity costs and operational instability are quantified for a context of pronounced seasonality. The paper finds that carriers unable to adjust transportation capacity to seasonal changes can incur costs of nearly five times what is possible with maximum forecasting capabilities and prudent replenishment policies. Another major finding is that replenishment policy is superior to forecasting capability in reducing BWE-related costs.