1. In problem 1 (Shown underneath the bolded questions) , the manufacturer that
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Question
1. In problem 1(Shown underneath the bolded questions), the manufacturer that supplies the wholesaler also becomes interested in the bullwhip effect and would like to compare the variability of the orders it receives from the wholesaler with the variability of the orders that the retailer receives from the customers. Assume that for the same typical product discussed in problem 1 (i.e., the wholesaler’s lead time to the retailer is 5 weeks and a moving of 8 periods is used to forecast), the manufacturer’s lead to the wholesaler is 7 weeks. Also assume that demand information is decentralized (i.e., the retailer does not make its forecasted mean demand available to the wholesaler or the manufacturer. Thus the wholesaler and manufacturer must estimate the mean demand based on the orders received).
a. Quantify the bullwhip effect (i.e., how many times is the variable of orders placed by the wholesaler to the manufacturer larger than the variability of orders placed from the customer to the retailer?)
b. Repeat part a if the demand information is centralized (i.e., the supply chain partners fully share all information with each other).
c. Discuss any managerial implications.
(problem 1) - ABC, Inc. is a retailer that has recently realized the significant impact of the bullwhip effect on its supply chain. The wholesaler that supplies ABC, Inc. would like to quantify the bullwhip effect by comparing the variability of the orders they receive from ABC, Inc. with the variability of the customer orders that ABC, Inc. observes. Specifically, they select a typical product with a lead time of 5 weeks (i.e., it takes the retailer 5 weeks to receive an order from the wholesaler). Also, assume that the retailer uses a moving average of 8 periods to forecast the demand for this product.
Explanation / Answer
Calculate magnitude of bullwhip Var(Q)/Var(D) = 1 + 2/p + 2L/p2
Where, L – Lead time, p- period of moving averages
Wholesaler’s bullwhip = 1 + 2/8 + 2*7/82
= 1.46875
Retailers’s bullwhip = 1 + 2/8 + 2*5/82
= 1.40625
Calculate magnitude of bullwhip Var(Q)/Var(D) = 1 + 2L/p + 2L2/p2
Where, L – Lead time, p- period of moving averages
Wholesaler’s bullwhip = 1 + 2*7/8 + 2*72/82
= 4.28125
Retailers’s bullwhip = 1 + 2*5/8 + 2*52/82
= 3.03125
Bullwhip effect is caused by human intervention and by disruptions in information flow in the supply chain. As expected, lead times, whether deterministic or stochastic, exacerbate the bullwhip effect by inflating the variance of the demand at the upstream echelons. However, lead-time variability contributes further to the bullwhip effect.
- Quantify the bullwhip effect (i.e., how many times is the variable of orders placed by the wholesaler to the manufacturer larger than the variability of orders placed from the customer to the retailer?)
Calculate magnitude of bullwhip Var(Q)/Var(D) = 1 + 2/p + 2L/p2
Where, L – Lead time, p- period of moving averages
Wholesaler’s bullwhip = 1 + 2/8 + 2*7/82
= 1.46875
Retailers’s bullwhip = 1 + 2/8 + 2*5/82
= 1.40625
- Repeat part a if the demand information is centralized (i.e., the supply chain partners fully share all information with each other).
Calculate magnitude of bullwhip Var(Q)/Var(D) = 1 + 2L/p + 2L2/p2
Where, L – Lead time, p- period of moving averages
Wholesaler’s bullwhip = 1 + 2*7/8 + 2*72/82
= 4.28125
Retailers’s bullwhip = 1 + 2*5/8 + 2*52/82
= 3.03125
- Discuss any managerial implications.
Bullwhip effect is caused by human intervention and by disruptions in information flow in the supply chain. As expected, lead times, whether deterministic or stochastic, exacerbate the bullwhip effect by inflating the variance of the demand at the upstream echelons. However, lead-time variability contributes further to the bullwhip effect.
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