The Incremental Bullwhip Effect of Operational Deviations in an Arborescent Supply Chain with Requirements Planning

Abstract

To mitigate the bullwhip effect in a supply chain, Lee et al. (1997) advocated the idea of sharing demand and order information among different supply chain entities by using compatible MRP or ERP systems. Even with full supply chain visibility afforded by an MRP system and no information distortion, we show that there is a “core” bullwhip effect inherent to any supply chain because of the underlying demand characteristics and replenishment lead times. In addition to this core bullwhip effect, we show how various operational deviations (inaccurate order placements, batching, lag in sharing demand forecast) contribute incrementally to the variance of the order quantity at not only at the node where the deviation is taking place but to all upstream supply chain nodes. We discuss some managerial implications of our results in the context of an UK manufacturer that motivated this work.

Keywords: bullwhip effect, supply chain, information distortion, quantification, MRP, ERP, UK manufacturer

JEL Classification: C32, D80, E17, M11