Reducing the Bullwhip Effect in the Supply Chain: A Study of Different Ordering Strategies

Abstract

Profitability of a company can be affected by the costs associated with backlogs and large inventories due to the bullwhip effect in the supply chain. This work aims to find an ordering strategy that is practical and can minimize the bullwhip effect. Five strategies with different levels of information about inventory and components along the supply line have been compared with the just in time (JIT) pull strategy and the usage of point of sale (POS) data. This work uses the beer game spreadsheet simulation developed by Adams, Flatto, and Gardner (2008). The simulation shows material and information flow in a four-echelon supply chain. Expressions for cost incurred and profit obtained by each player (manufacturer, distributor, wholesaler, and retailer) have been developed. Graphs for cost and profit with time are plotted. The strategy using POS data is found to be the best, and the pull strategy to be the next best. However, both require discipline. This study shows that putting information about the inventory levels and components of the supply line into an ordering strategy can also minimize the bullwhip effect.