Measuring the bullwhip effect with market competition among retailers: A simulation study

Abstract

By considering the market competition among retailers, the object of this study is to measure the bullwhip effect in a two-stage supply chain with one supplier and multiple retailers. A model is detailed for measuring the bullwhip effect in which multiple retailers exhibit AR(1) demand processes and the degree of market competition is captured with copula. Through the model developed in this paper, we use simulation methods to study the influence of market competition on the bullwhip effect. The simulation results show that the market competition has a significant impact on bullwhip effect. The influence of the types of copulas on the bullwhip effect remains stable as the lead time increases. The supply chain structure has an impact on the bullwhip effect. The results of the empirical application show that a suitable copula helps to improve prediction accuracy for the bullwhip effect. Moreover, we discuss how our study can be applied to bullwhip effect management.