Modeling and analysis of cash-flow bullwhip in supply chain

The bullwhip effect that occurs in supply chain inventory can distort demand forecasts and lead to inefficiencies such as excessive inventory, stock-outs, and backorders. In this paper we theorize that inventory bullwhip also leads to cash-flow bullwhip (CFB). Specifically, this paper focuses on studying CFB by developing mathematical and simulation models to analyze the relationship between inventory and cash-flow bullwhip by using Cash Conversion Cycle (CCC) as a metric. The mathematical models for inventory bullwhip are developed for two-stage and generic multi-stage supply chains, and then by extending these inventory models, the CFB models are developed for two-stage. CFB predicted by the proposed mathematical models approximately differ 14% from detailed simulation models. We find that increasing variability increases inventory and cash-flow bullwhip along with lead time, whereas increasing the demand observation period has the opposite effect. The average marginal impact of the bullwhip effect on the CFB is approximately 20%. Additionally, the CFB is also an increasing function of an expected value of inventory and a decreasing function of an expected value of demand.