Effects of Vendor-Managed Inventory on the Bullwhip Effect

The bullwhip effect means that demand variability increases as one moves up the supply chain. In the following article the bullwhip effect is quantified for each part of the supply chain which is presupposed to consist of a producer, a wholesaler, a retailer, and a consumer. After considering the causes of the bullwhip effect, it will be shown with the help of a nonlinear optimization model to what extent the bullwhip effect can be reduced using vendor-managed inventory (VMI) as one concept of Collaborative Planning, Forecasting and Replenishment (CPFR). In contrast to other studies in this field the reduction of the bullwhip effect will be accurately quantified for each part of the supply chain.

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