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Taming the bullwhip effect whilst watching customer service in a single supply chain echelon

Disney, Stephen Michael, Farasyn, I, Lambrecht, M., Towill, Denis Royston and Van de Velde, W. 2006. Taming the bullwhip effect whilst watching customer service in a single supply chain echelon. European Journal of Operational Research 173 (1) , pp. 151-172. 10.1016/j.ejor.2005.01.026

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Abstract

We study a generalised order-up-to policy that has highly desirable properties in terms of order and inventory variance and customer service levels it generates. We quantify exactly the variance amplification in replenishment orders, i.e. the bullwhip effect, and the variance of inventory levels over time, for i.i.d. and the weakly stationary auto regressive (AR), moving average (MA) and auto regressive moving average (ARMA) demand processes. We demonstrate that high customer service as measured by fill-rate, and smooth replenishments need not increase inventory cost substantially. We observe that in some instances of the ARMA demand pattern this comes at the expense of a relatively small increase in safety stock, whilst in other instances inventory levels can actually be reduced.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Centre for Advanced Manufacturing Systems At Cardiff (CAMSAC)
Uncontrolled Keywords: Order-up-to policies ; ARMA demand ; Bullwhip ; Inventory variance ; Fill-rates
ISSN: 0377-2217
Date of First Compliant Deposit: 30 March 2016
Last Modified: 10 Jul 2017 16:05
URI: http://orca.cf.ac.uk/id/eprint/2874

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