The bullwhip effect on inventory under different information sharing settings based on price-sensitive demand

Abstract

Information sharing (IS) is proved to be a valid method to counter demand variability amplification along the supply chain, or bullwhip effect (BWE). Different from the traditional way of measuring the BWE based on order quantity, we measure the BWE on inventory in different IS settings and try to find the best IS approach. In this paper, the retailer will face the market demand which is price-sensitive, and the price follows a first-order autoregressive process. This demand model includes some indexes that can provide more useful managerial insights than previously studied parameters. Our study identifies the best IS setting under any conditions, and clarifies that the benefits of IS will be evident when the overall market product pricing process is highly correlated over time, the demand shocks to the retailer are high, the price sensitivity coefficient is small, the overall market shocks are low, the retailer’s lead-time is long and the manufacturer’s lead-time is short.