The incremental bullwhip effect of operational deviations in an arborescent supply chain with requirements planning

Lee et al. (1997) advocated the idea of sharing demand and order information among different supply chain entities to mitigate the bullwhip effect. Even with full supply chain visibility afforded by IT systems with requirements planning and with no information distortion, we identify a “core” bullwhip effect inherent to any supply chain because of the underlying demand characteristics and replenishment lead times. In addition, we quantify an incremental bullwhip effect as various operational deviations (inaccurate order placements, batching, lag in sharing demand forecast) contribute incrementally to the variance of the order quantity not only at the node where the deviation is taking place but also at all upstream supply chain nodes. We discuss some managerial implications of our results in the context of a UK manufacturer.

► There is a “core” bullwhip effect that depends only on the demand and lead times. ► Operational deviations contribute incrementally to the core bullwhip effect. ► Operational deviations at any node increase bullwhip at all upstream nodes. ► Having more echelons increases the incremental impact of operational deviations. ► An arborescent network dramatically increases the bullwhip at upstream nodes.