Bullwhip Effect – Supply Chain Stability Examination in the Presence of Demand Uncertainty and Delay

Abstract

The paper analyzes the formation of the bullwhip effect in logistic systems, as a major threat to preserving stability in the face of non-negligible goods transport delay and uncertainty of demand and stock records. The popular Order-Up-To policy is selected as the method governing the goods flow. A dynamic model of entity interaction is constructed and examined, first, analytically, then in numerical tests for various scenarios of practical significance, e.g., a supply chain with external and local demand signals. It has been found that the Order-Up-To policy does not trigger the bullwhip effect despite the delays in the goods delivery in the nominal operating conditions. However, when the stock records are imprecise or erroneous, the bullwhip effect does occur. It leads to economic costs increase and, in certain cases, to the loss of system stability. The intensity of the bullwhip effect depends on the type of demand distribution function with the normal distribution leading to the largest order-to-demand variance increase.