Using the third order exponential smoothing forecasts on reducing the bullwhip effect and inventory costs in supply chain

Abstract

First, in the paper the bullwhip effect, average inventory level and expected holding and shortage costs at retailer in a two-stage supply chain are quantified when different exponential smoothing forecasting is used. Through a comparison study it is shown that in a supply chain with positively correlated demand, the order variance, inventory level and expected inventory costs based on the third order exponential smoothing forecast is smaller than those based on the second order exponential smoothing forecast, and the order variance, inventory level and expected inventory costs based on double exponential smoothing forecast is smaller than those based on simple exponential smoothing forecast. It is also indicated that for large values of lead time, the third order exponential smoothing forecast can significantly decrease the average inventory and expect inventory costs at the retailer. When the lead time is small, however, the reductions in average inventory and expected inventory costs are limited.