The Bullwhip Effect in Servicized Manufacturers
48 Pages Posted: 20 Dec 2021 Last revised: 22 Dec 2021
Date Written: December 18, 2021
The service-oriented economy has prompted traditional product-oriented manufacturing firms to increasingly infuse various services into their businesses. This research provides empirical evidence disclosing the impact of manufacturers' service offerings on two bullwhip issues, namely "felt" demand variability and intra-firm demand distortion. Through text mining on the 10-K filings of US-listed manufacturing firms, we identify the services offered by each manufacturer per year and distinguish between services that complement product sales, such as maintenance and repair, and services that substitute product sales completely, such as machine hours. Using difference-in-difference techniques, we find robust evidence that manufacturers' service offerings reduce the bullwhip effect in two steps: after providing basic complementing services, the "felt" bullwhip would decrease; and when manufacturers start to provide advanced substituting services, the intra-firm bullwhip will decrease. Furthermore, the demand-smoothing effect of service is intensified for a firm with younger age and less asset utilization, while the distortion-reduction effect is intensified for a firm with lower inventory turnover and higher inventory level. These findings expand our knowledge of manufacturers' servicization and the bullwhip effect by demonstrating that business transformation can mitigate the bullwhip effect and different service categories have different focuses in reducing the two bullwhip measures.
Keywords: bullwhip effect, servicization, textual data, demand variability, demand distortion
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