Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 363, Issue 1, Pages 14-23Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.physa.2006.01.044
Keywords
bullwhip effect; advance demand information; market-based strategy; Probabilistic supplier behavior
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This paper shows how to reduce the bullwhip effect by introducing advance demand information (ADI) into the ordering schemes of supply chains. It quantifies the potential costs and benefits of ADI, and demonstrates that they are not evenly distributed across the chain. Therefore, market-based strategies to re-distribute wealth without penalizing any supplier are presented. The paper shows that if a centralized operation can eliminate the bullwhip effect and reduce total cost, then some of this reduction can also be achieved with decentralized negotiation schemes. Their performance is evaluated under different modes of probabilistic Supplier behavior. For some forms of behavior the optimum is reached. But if suppliers are greedy and impatient the expected gain in wealth is relatively small. This is a case of economic market failure. (c) 2006 Elsevier B.V. All rights reserved.
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