Quantification of Bullwhip effect in Supply Chain management

Abstract

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request or demand. The supply chain not only includes the manufacturers and suppliers, but also transporters, warehouses, retailers, and finally the end consumers themselves. The objective of every supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request. An important phenomenon in Supply Chain Management is known as bullwhip effect (BWE), which suggests that the demand variability increases as one moves up a supply chain. Bullwhip effect is an undesirable phenomenon in the supply chain which exacerbates the supply chain performance. The impact of BWE is to increase manufacturing cost, inventory cost, replenishment lead time, transportation cost, labor cost for shipping and receiving, cost for building surplus capacity and holding surplus inventories, and to decrease level of product availability and relationship across the supply chain. Various factors can cause bullwhip effect, one of which is customer demand forecasting. In this study, impact of forecasting methods on the bullwhip effect and mean square error has been considered. The preceding study highlights the effect of forecasting technique, order processing cost and demand pattern on BWE and mean square error (MSE). The BWE and MSE have been evaluated using Microsoft Excel Sheet. The results were analyzed using Taguchi design in Minitab 16 and finally the optimal parameters for minimum values of BWE and MSE have been determined.