The Bullwhip Effect in Supply Networks

52 Pages Posted: 12 Sep 2018 Last revised: 26 Dec 2019

See all articles by Nikolay Osadchiy

Nikolay Osadchiy

Emory University - Goizueta Business School

William Schmidt

Cornell University - Samuel Curtis Johnson Graduate School of Management

Jing Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: August 30, 2018

Abstract

We offer a new network perspective on one of the central topics in Operations Management –- the bullwhip effect (BWE). The topic has both practical and scholarly implications. We start with an observation: the variability of orders placed to suppliers is larger than the variability of sales to customers for most firms, yet the aggregate demand variability felt by suppliers upstream does not amplify commensurably. We hypothesize that changes to the supplier's customer base can smooth out its aggregate demand. We test the hypothesis with a data set that tracks the evolution of supply relationships over time. We show that the effect of customer base management extends beyond the statistical benefits of aggregation. In particular, both the formation and the dissolution of customer-supplier relationships are associated with the smoothing of the aggregate demand experienced by suppliers. This provides fresh insight into how firms may leverage their customer-supplier relationships to mitigate the impact of the BWE.

Keywords: Supply Networks, Bullwhip Effect, Demand Variability, Empirical Study

Suggested Citation

Osadchiy, Nikolay and Schmidt, William and Wu, Jing, The Bullwhip Effect in Supply Networks (August 30, 2018). Available at SSRN: https://ssrn.com/abstract=3241132 or http://dx.doi.org/10.2139/ssrn.3241132

Nikolay Osadchiy

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.bus.emory.edu/nosadch/

William Schmidt

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Jing Wu (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.jingwulab.org

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