Big Data and SCM

The Bullwhip and how not to get hit hard by it

Eirikur Jonsson

20/10/2019

What is the bullwhip effect?


The bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.

Bullwhip Effect in an image

Why this happens

  1. Demand signal forecasting
  2. Rationing game
  3. Order batching

Which of the three V’s are most important

Volume

Velocity

Variety

The assumptions made in the article

Basic Model


  • The observed supply chain consists of a single retailer and a single manufacturer.
  • The manufacturer uses an order-up-to policy
  • Demand forecasting is based on simple exponential smoothing.

Exponential smoothing

## `geom_smooth()` using method = 'loess' and formula 'y ~ x'

Block Diagram of the Basic model


Distribution Transperency

Measuring effects of Volume

\(Operationalization\; term: \frac{u}{1-r} \rightarrow \frac{u}{1-r(1-Vo)}\)

Order frequency

Effects of velocity

\(Operationalization\; term: \frac{u}{1-r} \rightarrow \frac{u}{1-r(1-Ve)}\)

Impact of new data

Variety of data included

\(Operationalization\; term: \frac{u}{1-r} \rightarrow \frac{u}{1-r(1-Va)}\)

Conclusion


  1. Velocity has the greates impact
  2. Variety had minimal effect
  3. Volume had no measureable effect
  4. Limitations?

The Ending remarks




Questions or Comments