Product portfolio adjustments and the bullwhip effect: The impact of product introduction and retirement

Abstract

Many manufacturers frequently tweak their product portfolios by introducing new products and retiring low performers. In this paper, we study how the demand shock caused by portfolio adjustments impacts the bullwhip effect (BWE) of existing products. With the help of two approximations, we provide a closed-form expression for the BWE as a function of the time (number of periods) remaining until the shock, which enables us to obtain novel insights. When products are retired, the market share of the remaining product varieties often increases. We prove that the product experiencing the most significant market share increase also encounters the highest BWE surge in the periods leading up to the portfolio change. On the other hand, the introduction of new products does not consistently lead to a higher BWE for existing products. The impact on the BWE depends on several parameters, particularly the uncertainty surrounding the market share of existing products after the portfolio change. When this uncertainty is low for an existing product, its BWE reduces when new varieties are introduced.