Analyzing Bullwhip Effect Sensitivity in a Four-level Supply Chain Using Average Moving Method to Forecast the Demand

Abstract

In recent years, coping with a phenomenon known as bullwhip effect, has been among the most important issues in supply chain management. Bullwhip dramatically affects companies’ financial performance stating that the swing of changes in demands increases when we move from the end of the chain to the beginning of that chain. Many studies have been conducted on reducing the impact of supply chain bullwhip, each focusing on specific aspects. For this purpose in the present study, a linear four-level supply chain including store, retailer, wholesaler and factory was proposed, and the moving average method was used to predict the demand. To do so, nine different scenarios including demand changes (low, medium, high) and precautionary (low, moderate, high) were considered and the lag effect was calculated with a 95% confidence interval and throughout a one-year period. The findings showed that if we use average moving method to predict the demands, any increase in the customers’ demand change swing will result in the decrease of the whip effect on the whole chain. In addition, if the demand changes are considered as constant and fixed, any increase in precautionary saving in each part of the supply chain will increase the whip effect on the whole chain.

Keywords

• Bullwhip Effect
• Moving Average Method
• Order-up-to
• Supply chain