Dampening variability by using smoothing replenishment rules.

A major cause of supply chain deficiencies is the bullwhip effect which can be substantial even over a single echelon. This effect refers to the tendency of the variance of the replenishment orders to increase as it moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyse a major cause of the bullwhip effect and suggest a remedy. We focus on a smoothing replenishment rule that is able to reduce the bullwhip effect across a single echelon. In general, dampening variability in orders may have a negative impact on customer service due to inventory variance increases. We therefore quantify the variance of the net stock and compute the required safety stock as a function of the smoothing required. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates.Bullwhip effect; Companies; Cost; Costs; Impact; Inventory; Managers; Order; Replenishment rule; Rules; Safety stock; Supply chain; Supply chain management; Variability; Variance; Variance reduction;

Smooth is smart: bullwhip, inventory, fill-rates and the golden ratio.

Inventory;

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

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

Taming bullwhip whilst watching customer service

We study a generalised order-up-to policy that has highly desirable properties in terms of order and inventory variance and customer service. 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., Auto Regressive (AR), Moving Average (MA) and the weakly stationary Auto Regressive Moving Average (ARMA) demand process. We demonstrate that high customer service as measured by fill rate, and smooth replenishments are not mutually exclusive. We observe that in many instances of the ARMA demand pattern this comes at the expense of a relatively small increase in safety stock, while in other instances inventory levels can actually be reduced.status: publishe

Dampening variability by using smoothing replenishment rules

A major cause of supply chain deficiencies is the bullwhip effect which can be substantial even over a single echelon. This effect refers to the tendency of the variance of the replenishment orders to increase as it moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyse a major cause of the bullwhip effect and suggest a remedy. We focus on a smoothing replenishment rule that is able to reduce the bullwhip effect across a single echelon. In general, dampening variability in orders may have a negative impact on customer service due to inventory variance increases. We therefore quantify the variance of the net stock and compute the required safety stock as a function of the smoothing required. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates.status: publishe

Smooth is smart: Bullwhip, inventory, fill-rates and the golden ratio

A major cause of supply chain deficiencies is the bullwhip effect. This effect refers to the tendency of the variance of the replenishment orders to increase as one moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyze a major cause of the bullwhip effect and suggest a remedy. We focus on a unique replenishment rule that is able to reduce the bullwhip effect. In general, bullwhip reduction may have a negative impact on customer service due to inventory variance increases. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates

Smooth is Smart.Bullwhip, Inventory, Fill-Rates and the Golden Ratio

A major cause of supply chain deficiencies is the bullwhip effect. This effect refers to the tendency of the variance of the replenishment orders to increase as one moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyze a major cause of the bullwhip effect and suggest a remedy. We focus on a unique replenishment rule that is able to reduce the bullwhip effect. In general, bullwhip reduction may have a negative impact on customer service due to inventory variance increases. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates.