Do Electronic Linkages Reduce the Bullwhip Effect? An Empirical Analysis of the US Manufacturing Supply Chains

The bullwhip effect is a major source of supply chain inefficiency. Whereas prior literature has identified a number of potential contributing factors and recommended such remedies as information sharing enabled by information technology (IT) or electronic linkage (EL), few studies have provided empirical support. We use industry-level data to examine whether EL use with buyer and supplier industries helps reduce the bullwhip effect as measured by inventory demand variance ratio. Our major findings are that (1) EL use with supplier industries reduces the bullwhip effect, whereas (2), surprisingly, EL use with buyer industries increases it, but (3) this adverse effect tends to be mitigated by IT use. These findings point to the possible asymmetric effects of EL use in supply chains and provide a different perspective to the existing conclusions in the literature that EL use improves performance. Combining the above results, we have learned that the use of EL tends to behave differently depending on whether it is used upstream or downstream in the supply chain. This also sheds light on the conditions under which such investment may be more (or less) beneficial.