Marlene Silva Marchena. Measuring and implementing the bullwhip effect under a generalized demand process
Submitted on: Jul 11, 2012, 00:00:14
Natural Sciences / Mathematics / Statistics
Description: The measure of the bullwhip effect, a phenomenon in which demand variability increases as one moves up the supply chain, is a major issue in Supply Chain Management. Although it is simply defined (it is the ratio of the unconditional variance of the order process to that of the demand process), explicit formulas are difficult to obtain. In this paper we investigate the theoretical and practical issues of Zhang [Manufacturing and Services Operations Management 6-2 (2004b) 195] with the purpose of quantifying the bullwhip effect. Considering a two-stage supply chain, the bullwhip effect is measured for an ARMA(p,q) demand process admitting an infinite moving average representation. As particular cases of this time series model, the AR(p), MA(q), ARMA(1,1), AR(1) and AR(2) are discussed. For some of them, explicit formulas are obtained. We show that for certain types of demand processes, the use of the optimal forecasting procedure that minimizes the mean squared forecasting error leads to significant reduction in the safety stock level.
The abstract of this article has been published in the "Intellectual Archive Bulletin" , July 2012, ISSN 1929-1329.
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