Counteracting the bullwhip effect with decentralized negotiations and advance demand information

Yanfeng Ouyang, Carlos Daganzo

Research output: Contribution to journalArticle

Abstract

This paper shows how to reduce the bullwhip effect by introducing advance demand information (ADI) into the ordering schemes of supply chains. It quantifies the potential costs and benefits of ADI, and demonstrates that they are not evenly distributed across the chain. Therefore, market-based strategies to re-distribute wealth without penalizing any supplier are presented. The paper shows that if a centralized operation can eliminate the bullwhip effect and reduce total cost, then some of this reduction can also be achieved with decentralized negotiation schemes. Their performance is evaluated under different modes of probabilistic supplier behavior. For some forms of behavior the optimum is reached. But if suppliers are greedy and impatient the expected gain in wealth is relatively small. This is a case of economic "market failure".

Original languageEnglish (US)
Pages (from-to)14-23
Number of pages10
JournalPhysica A: Statistical Mechanics and its Applications
Volume363
Issue number1
DOIs
StatePublished - Apr 15 2006

Keywords

  • Advance demand information
  • Bullwhip effect
  • Market-based strategy
  • Probabilistic supplier behavior

ASJC Scopus subject areas

  • Statistics and Probability
  • Condensed Matter Physics

Fingerprint Dive into the research topics of 'Counteracting the bullwhip effect with decentralized negotiations and advance demand information'. Together they form a unique fingerprint.

  • Cite this