The bullwhip effect in a manufacturing/remanufacturing supply chain under a price-induced non-standard ARMA(1,1) demand process

Abstract

This study examines the bullwhip effect in a manufacturing/remanufacturing supply chain consisting of one retailer, one manufacturer, one supplier, and one third-party collector. Products returned from the end users are converted to ‘as-good-as-new’ products through remanufacturing. Both manufactured and remanufactured products are used to meet the stochastic demand of the retailer. We incorporate the price of the product in the demand through an autoregressive moving average (ARMA) pricing process, realizing a market demand that evolves according to a non-standard ARMA(1,1) process. For this demand model, we employ the order-up-to inventory policy with a minimum mean square error forecasting scheme and measure the bullwhip effect at each echelon of the supply chain. We investigate the behaviour of the bullwhip effect analytically, and a numerical evaluation shows that the bullwhip effect or the anti-bullwhip effect may occur at each echelon depending on the values of the autoregressive and moving average parameters of the underlying demand process. We also investigate the effects of the remanufacturing yield, the variance of the market shock on price, and the lead times on the bullwhip effect.