The value of market information and the bullwhip effect

Abstract

By considering market demand information, the objective of this study is to measure the bullwhip effect in a two-stage supply chain with one supplier and multiple retailers. First, a model is detailed for measuring the bullwhip effect in which multiple retailers exhibit AR(1) demand processes and the order-up-to inventory level is calculated using market demand information. We find results that the bullwhip effect increases with the market share and lead time and decreases with the contemporaneous correlation and the number of retailers. Second, by comparing the bullwhip effect with or without market information, our model can better control and reduce the bullwhip effect. Third, we calculate the value of market information with the newsvendor model and discover that the value of market information increases with the number of retailers and the contemporaneous correlation and decreases with the market share. In addition, numerical analyses are given to verify the previous results. Moreover, some suggestions are presented to help managers make decisions on the bullwhip effect.