A study on the impact of uncertain factors on information distortion in supply chains

Abstract

Information distortion is a troublesome problem in supply-chain management. The most familiar form of information distortion is the ‘bullwhip effect’, which can be predicted according to parameters such as lead-times and forecasting coefficients. However, this paper focuses on the other form of information distortion that is caused by uncertain factors. This paper first defines the concept of the bullwhip effect, and proposes a new term ‘extended-bullwhip effect’, which is employed to describe information distortion besides the bullwhip effect. Then we quantify the negative impact of uncertain factors on information distortion for a simple two-stage supply chain consisting of a single retailer and a single manufacturer. In addition, the magnifications of demand variance arisen by the extended-bullwhip effect are exemplified through a numerical simulation. It is clarified that if the members of a supply chain share information, the ‘extended-bullwhip effect’ can be completely eliminated. Finally, four forms of information distortion are identified according to the quantitative analysis.