Bullwhip Effect of Supply Networks: Joint Impact of Network Structure and Market Demand

TL;DR

This paper analytically examines how supply network structures and market demand types influence the bullwhip effect, revealing that network width can reduce amplification under certain demand conditions.

Contribution

It provides a unified analytical framework for understanding the impact of network topology and demand processes on the bullwhip effect in supply chains.

Findings

Network structure does not affect the bullwhip effect under stationary demand.

Wider supply networks reduce the bullwhip effect with non-stationary or diverse demand.

Analytical methods are validated through numerical simulations.

Abstract

The progressive amplification of fluctuations in demand as the demand travels upstream the supply chains is known as the bullwhip effect. We first analytically characterize the bullwhip effect in general supply chain networks in two cases: (i) all suppliers have a unique layer position, where our method is founded on the control-theoretic approach, and (ii) not all suppliers have a unique layer position due to the presence of intra-layer links or inter-layer links between suppliers that are not positioned in consecutive layers, where we use both the absorbing Markov chain and the control-theoretic approach. We then investigate how network structures impact the BWE of supply chain networks. In particular, we analytically show that (i) if the market demand is generated from the same stationary process, the structure of supply networks does not affect the layer-wise bullwhip effect of supply networks, and (ii) if the market demand is generated from different stationary or non-stationary market processes, wider supply networks lead to a lower level of layer-wise bullwhip effect. Finally, numerical simulations are used to validate our propositions.