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Hau L. Lee; V. Padmanabhan; Seungjin Whang (1997)
Journal: Management Science
Types: Article
Subjects: supply chain management, information distortion, information integration, production and inventory management
(This article originally appeared in Management Science, April 1997, Volume 43, Number 4, pp. 546--558, published by The Institute of Management Sciences.) Consider a series of companies in a supply chain, each of whom orders from its immediate upstream member. In this setting, inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions. This paper claims that the information transferred in the form of ÜordersÝ tends to be distorted and can misguide upstream members in their inventory and production decisions. In particular, the variance of orders may be larger than that of sales, and distortion tends to increase as one moves upstreamÔa phenomenon termed Übullwhip effect.Ý This paper analyzes four sources of the bullwhip effect: demand signal processing, rationing game, order batching, and price variations. Actions that can be taken to mitigate the detrimental impact of this distortion are also discussed.
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