Information Sharing as a Coordination Mechanism for Reducing the Bullwhip Effect in a Supply Chain

The bullwhip effect is an amplification of the variability of the orders placed by companies in a supply chain. This variability reduces the efficiency of supply chains, since it incurs costs due to higher inventory levels and supply chain agility reduction. Eliminating the bullwhip effect is surely simple; every company just has to order following the market demand, i.e., each company should use a lot-for-lot type of ordering policy. However, many reasons, such as inventory management, lot-sizing, and market, supply, or operation uncertainties, motivate companies not to use this strategy. Therefore, the bullwhip effect cannot be totally eliminated. However, it can be reduced by information sharing, which is the form of collaboration considered in this paper. More precisely, we study how to separate demand into original demand and adjustments. We describe two principles explaining how to use the shared information to reduce the amplification of order variability induced by lead times, which we propose as a cause of the effect. Simulations confirm the value of these two principles with regard to costs and customer service levels