Information Sharing for the Bullwhip Effect

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Information sharing for the bullwhip effect: over- or underestimated?

Bachelor thesis:
Thesis Circle:

Organization studies, 2nd semester, academic year 2011-2012
Time will tell…. A processes perspective on inter-organizational collaboration

Name: ANR: E-mail:

PC Jansen 770926 P.C.Jansen@uvt.nl

Information sharing for the bullwhip effect: over- or underestimated? Abstract This literature review investigates the effect of information sharing from a buyer to a supplier in a supply chain on the performance of that supplier, with taking in mind that the supplier has to combat the bullwhip effect. With the existence of the bullwhip effect, a supplier cannot make right forecasts and therefore has difficulties in planning its production and/or inventory control. This research shows that information sharing is the key solution to reduce or avoid the bullwhip effect and, by that, is positively influences the performance of the supplier in the chain.

Keywords: Bullwhip, supply chain, information sharing, supplier performance, inventory control

Thesis Circle: Time will tell…. A processes perspective on inter-organizational collaboration

Supervisor:

Remco Mannak

Supervisor 2: Annemieke Stoppelenburg

Name: ANR: E-mail:

PC Jansen 770926 P.C.Jansen@uvt.nl 2

Table of contents Table of contents 1. Introduction 2. Theoretical Framework 2.1 Performance of a supplier 2.2 Information sharing 2.3 Bullwhip effect 3. Methodology 3.1 Data collection 3.2 Quality Indicators 4. Results 4.1 Information sharing is the key solution 4.2 Information sharing is not the key solution 5. Conclusion and recommendations 5.1 Conclusion 5.2 Recommendations for future research 6. Discussion and reflection 6.1 Discussion 6.2 Reflection 7. References 3 4 7 7 7 9 11 11 12 13 13 21 24 24 26 28 28 29 30

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1. Introduction

Collaboration is something which has occurred over all times and is a way for people as well as for organizations to accomplish any goal or wanted result. Min and Zhou (2002) stated that in today’s global marketplace, individual firms no longer compete as independent entities with unique brand names, but rather as integral part of supply chain links. According to Christopher (1992), a supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services delivered to the ultimate consumer. When looking at the downstream linkages, a supplier delivers his products or services to a buyer. The buyer has a recursive demand, and orders this demand to the supplier every period. The supplier, on his turn, has to deal with production scheduling and/or inventory control every period. However, dealing with those issues can be quite difficult for the supplier, when the demand of the buyer is variable and hard to predict.

This problem, or phenomenon, is called the Bullwhip effect. Yu et al. (2001) described this phenomenon as that the variability of an upstream member’s demand is greater than that of the downstream member, and that the effect therefore largely is caused by the variability of ordering. The supplier’s uncertainty about the upcoming buyer’s demand can lead to inefficient productions and inefficient inventory control, which on their turn will lead to increases of costs or decreased in revenues.

According to Chen (2003), information sharing is often suggested to combat the undesirable bullwhip effect. The importance of combating the bullwhip effect was elucidated by Yu et al. (2001), who stated that uncertainties will propagate through the supply chain in the form of amplification of ordering variability, which leads to excess in safety stock, increased logistics costs and inefficient use of resources (Yu et al, 2001). So, in order to reduce the chances for these negative consequences of uncertainties for the supplier, information sharing seems the key solution....
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