The Bullwhip Effect in Servitized Manufacturers

Management Science

56 Pages Posted: 20 Dec 2021 Last revised: 26 Apr 2024

See all articles by Yimeng Niu

Yimeng Niu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Jing Wu

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

Shenyang Jiang

Tongji University

Zhi-bin Jiang

Shanghai Jiao Tong University (SJTU)

Date Written: December 18, 2021

Abstract

The shift to a service-oriented economy has driven traditional product-oriented manufacturing firms to integrate various services into their businesses. This study aims to provide empirical evidence on how manufacturers’ service offerings impact demand variability and intrafirm bullwhip effects. Through “bag-of-words” text mining on 10-K filings of U.S.-listed manufacturing firms, we propose a novel measurement to identify annual services offered. We validate the measurement’s statistical and economic significance and verify its consistency with the results obtained using the large language model (i.e., GPT-4). Services are categorized as complementing product sales (e.g., maintenance and repair) or substituting product sales entirely (e.g., machine hours). Utilizing difference-indifference techniques, we find robust evidence that manufacturers’ service offerings reduce the bullwhip effect in two steps: basic complementing services decrease demand variability, whereas advanced substituting services mitigate intrafirm bullwhip. Moreover, servitization mainly minimizes demand variability through information channels, whereas increased production efficiency decreases intrafirm bullwhip. Our findings contribute to understanding manufacturers’ business model innovations by demonstrating that servitization can smooth demand and mitigate intrafirm bullwhip.

Keywords: bullwhip effect, servitization, textual analysis, large language model

Suggested Citation

Niu, Yimeng and Wu, Jing and Jiang, Shenyang and Jiang, Zhi-bin, The Bullwhip Effect in Servitized Manufacturers (December 18, 2021). Management Science, Available at SSRN: https://ssrn.com/abstract=3988802 or http://dx.doi.org/10.2139/ssrn.3988802

Yimeng Niu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

1954 Huashan Road
Shanghai, Shanghai 200030
China

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

Shenyang Jiang

Tongji University ( email )

Siping Road 1500
Shanghai, Shanghai 200092
China

Zhi-bin Jiang

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

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