The Bullwhip Effect in an Online Retail Supply Chain: A Perspective of Price-Sensitive Demand Based on the Price Discount in E-Commerce

This paper investigates the difference in bullwhip effects in online and offline retail supply chains, offering insights into how frequent price discounts in e-commerce influence the bullwhip effect in the online retail supply chain. We consider a two-level online retail supply chain with a manufacturer and an online retailer in which the demand faced by the retailer is price sensitive and based on the price discount. Assuming that the online retailer employs an optimal order-up-to inventory policy with an optimal minimum mean-squared error forecasting technique, we derive the expression of the bullwhip effect in the online retail supply chain and make analysis and comparison. Finally, we develop a dual-channel supply chain model to directly observe the impact of price discounts in e-commerce on the bullwhip effect. The results suggest that price discounts in the online retail market generally amplify the bullwhip effect in the online retail supply chain, but in certain conditions, the bullwhip in the online supply chain may be smaller than that in the offline supply chain. We also find that the relationship between the lead time and the bullwhip effect in the online supply chain presents a distinctive feature contrary to the conclusions of previous studies. Based on the analysis, we develop important managerial insights regarding online retail supply chains.

[1]  Vaidyanathan Jayaraman,et al.  The Internet as an enabler for dynamic pricing of goods , 2003, IEEE Trans. Engineering Management.

[2]  Christopher S. Tang,et al.  The Value of Information Sharing in a Two-Level Supply Chain , 2000 .

[3]  Tao Yao,et al.  Demand Learning and Dynamic Pricing under Competition in a State-Space Framework , 2012, IEEE Transactions on Engineering Management.

[4]  Russell S. Winer,et al.  An Empirical Analysis of Internal and External Reference Prices Using Scanner Data , 1992 .

[5]  J. M. Hsiao,et al.  Evaluating the value of information sharing in a supply chain using an ARIMA model , 2006 .

[6]  Ioana Popescu,et al.  Dynamic Pricing Strategies with Reference Effects , 2007, Oper. Res..

[7]  Woonghee Tim Huh,et al.  A two-stage multi-period negotiation model with reference price effect , 2010 .

[8]  D. Simchi-Levi,et al.  The impact of exponential smoothing forecasts on the bullwhip effect , 2000 .

[9]  Huynh Trung Luong,et al.  Measure of bullwhip effect in supply chains with autoregressive demand process , 2007, Eur. J. Oper. Res..

[10]  Manohar U. Kalwani,et al.  A Price Expectations Model of Customer Brand Choice , 1990 .

[11]  J. Forrester.  Industrial Dynamics: A Major Breakthrough for Decision Makers , 2012 .

[12]  Gary J. Russell,et al.  Profiling the reference price consumer , 2006 .

[13]  S. Disney,et al.  On variance amplification in a three-echelon supply chain with minimum mean square error forecasting , 2022 .

[14]  Kenneth Gilbert,et al.  An ARIMA Supply Chain Model , 2005, Manag. Sci..

[15]  Habib Chabchoub,et al.  Nonlinear goal programming models quantifying the bullwhip effect in supply chain based on ARIMA parameters , 2007, Eur. J. Oper. Res..

[16]  Noreen H. Klein,et al.  Cognitive Reference Points in Consumer Decision Making , 1987 .

[17]  Nallan C. Suresh,et al.  The impact of pricing policy on sales variability in a supermarket retail context , 2008 .

[18]  Lakshman Krishnamurthi,et al.  A comparative analysis of reference price models , 1997 .

[19]  Vineet Padmanabhan,et al.  Comments on "Information Distortion in a Supply Chain: The Bullwhip Effect" , 1997, Manag. Sci..

[20]  Stephen Michael Disney,et al.  State space investigation of the bullwhip problem with ARMA(1,1) demand processes , 2006 .

[21]  S. Hohmann.  The Bullwhip Effect in Supply Chains , 2014 .

[22]  Xun Wang,et al.  The bullwhip effect: Progress, trends and directions , 2016, Eur. J. Oper. Res..

[23]  Praveen K. Kopalle,et al.  The impact of external reference price on consumer price expectations , 2003 .

[24]  W. H. Hausman,et al.  Optimal centralized ordering policies in multi-echelon inventory systems with correlated demands , 1990 .

[25]  Frank Y. Chen,et al.  Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information.: The Impact of Forecasting, Lead Times, and Information. , 2000 .

[26]  Sunil Gupta,et al.  Supply Chain Decision Making: Will Shorter Cycle Times and Shared Point-of-Sale Information Necessarily Help? , 2004, Manag. Sci..

[27]  Sunil Agrawal,et al.  Impact of information sharing and lead time on bullwhip effect and on-hand inventory , 2009, Eur. J. Oper. Res..

[28]  Abhijit Biswas,et al.  Contextual Effects of Reference Prices in Retail Advertisements , 1991 .

[29]  Junhai Ma,et al.  Measure of the bullwhip effect considering the market competition between two retailers , 2017, Int. J. Prod. Res..

[30]  Ada Che,et al.  The bullwhip effect under different information-sharing settings: a perspective on price-sensitive demand that incorporates price dynamics , 2013 .

[31]  Ada Che,et al.  The impact of consumer price forecasting behaviour on the bullwhip effect , 2014 .

[32]  Yungao Ma,et al.  The bullwhip effect on product orders and inventory: a perspective of demand forecasting techniques , 2013 .

[33]  G. Tellis,et al.  Contextual and Temporal Components of Reference Price , 1994 .

[34]  Stowe Shoemaker,et al.  Price-Sensitivity Measurement: A Tool for the Hospitality Industry , 1997 .

[35]  Shai Danziger,et al.  The effects of informative and non‐informative price patterns on consumer price judgments , 2006 .

[36]  Kwan Hee Han,et al.  Manufacturing cycle time reduction for batch production in a shared worker environment , 2013 .

[37]  Xiaolong Zhang,et al.  Analysis of compound bullwhip effect causes , 2011, Eur. J. Oper. Res..

[38]  Jiuh-Biing Sheu,et al.  Production , Manufacturing and Logistics Marketing-driven channel coordination with revenue-sharing contracts under price promotion to end-customers , 2011 .

[39]  Lakshman Krishnamurthi,et al.  Asymmetric Response to Price in Consumer Brand Choice and Purchase Quantity Decisions , 1992 .

[40]  Tülin Erdem,et al.  A simple test for distinguishing between internal reference price theories , 2010 .

[41]  Huigang Liang,et al.  Analysis of the bullwhip effect in two parallel supply chains with interacting price-sensitive demands , 2015, Eur. J. Oper. Res..

[42]  M. Birnbaum,et al.  Source Credibility in Social Judgment : Bias , Expertise , and the Judge ' s Point of View , 1979 .