Predicting the impact of operational and financial variables on bullwhip effect using threshold regression: Indian context

Abstract

PurposeThe operational aspects of supply chain, when handled correctly, results in diminishing the impact of the bullwhip effect. The purpose of this study is to analyze the impact of operational and financial variables on the bullwhip effect. Various operational factors that contribute to the bullwhip effect in a supply chain are identified and their impact on variability in production is measured at manufacturer’s end in the supply chain.Design/methodology/approachTen different sectors of the Indian economy are identified and analyzed on the basis of bullwhip effect. The ratio of change in production with respect to change in demand is taken as a metric to measure the bullwhip effect. Initially, the impact of identified variables on bullwhip effect is analyzed using the linear regression analysis and then to gain more insights, the threshold regression model is applied according to the change in bullwhip ratio.FindingsThe study identifies four threshold regions in which bullwhip ratio is changing its slope considerably. The operational and financial variables impacting bullwhip effect differently in these four regions provide useful insights about how the variables are impacting the bullwhip effect.Research limitations/implicationsPast 11 years of observations on identified operational and financial variables are studied for ten different sectors. The operational and financial variables are identified on basis of available literature but may not be exhaustive in nature.Practical implicationsThe present study implies that the emphasis must be given to the magnitude of the bullwhip ratio. Strategies must be adopted that result in mitigation of bullwhip effect. Such mitigation strategies must not only be restricted on the basis of type of product or sector, perhaps they must be on the basis of threshold region of bullwhip ratio.Originality/valueThe study suggests a novel approach to study the bullwhip effect in supply chain management using the application of threshold regression considering the bullwhip ratio as a threshold variable.