A Mediated Impacts Model of Demand Volatility on Inventory Flow Integration in Supply Chains

We develop a theoretical model about how organizations cope with the bullwhip effect created by consumer demand uncertainty through product modularity and information sharing across the supply chain. Unpredictability of consumer demand is likely to accentuate inventory flows in the supply chain. Information sharing and product modularity can be used by organizations to mediate the impact of uncertain product demand on inventory flow integration. An organization’s success in coping with the bullwhip effect is reflected in the degree to which inventory flows are integrated across the supply chain. Our results suggest that (1) information sharing is essential for achieving integration of inventory flows irrespective of the demand environment, and (2) the strategy of modular product design can help organizations enhance inventory flows under conditions of consumer demand uncertainty.

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