Impact of Auto-regressive (AR) Process in Bullwhip Analysis in a Multi-location Supply Chain Network

Abstract

The present study is an attempt to quantify the Bullwhip Effect (BWE) -the phenomenon in which information on demand is distorted in moving up a supply chain. Assuming that the retailer employs an order-up-to level policy with auto-regressive process (AR), the paper investigates the influence of forecasting methods on bullwhip effect. Determining the order-up-to levels and the orders for the retailers’ demands in an isolated manner neglects the correlation of the demands and the relevant risk pooling effects associated with the network structure of the supply chains are disregarded. It is illustrated that the bullwhip effects are significantly reduced with consideration of potential correlation between the retailers’ demand.