Taming the Bullwhip Effect: In search of new replenishment rules in supply chains


It is well known that many companies experience major extra costs due to supply chain problems. Even after the installation of best-in class supply chain management systems, it seems that not all supply chain problems disappeared. Companies still face part shortages, excessive finished goods inventories, runaway transportation and warehousing costs. Many researchers conclude that a major cause of this problem is the bullwhip effect. This effect refers to the tendency of replenishment orders to increase in variability as one moves up a supply chain, in other words there is variance amplification. Because of that phenomenon, the information gets distorted in the chain, smooth finished product demand patterns are transformed into highly erratic demand patterns for suppliers. No need to say that all of this results in a set of difficult logistical problems. Supply chain systems easily get out of control. For that reason the Operations Management Group of the Department of Applied Economic Sciences, K.U. Leuven started a joint research project with the famous Logistics Systems Dynamics Group of the Cardiff Business School. We use control systems engineering approaches as a methodology to tame the bullwhip effect. In this contribution, we report on our major findings.

Business Inzicht, 8 (October), 1-4