The impact of exponential smoothing forecasts on the bullwhip effect. (English) Zbl 0968.90006

Chen, Frank; Ryan, Jennifer K.; Simchi-Levi, David

Nav. Res. Logist. 47, No. 4, 269-286 (2000).

Summary: An important phenomenon often observed in supply chain management, known as the bullwhip effect, implies that demand variability increases as one moves up the supply chain, i.e., as one moves away from customer demand. In this paper we quantify this effect for simple, two-stage, supply chains consisting of a single retailer and a single manufacturer. We demonstrate that the use of an exponential smoothing forecast by the retailer can cause the bullwhip effect and contrast these results with the increase in variability due to the use of a moving average forecast. We consider two types of demand processes, a correlated demand process and a demand process with a linear trend. We then discuss several important managerial insights that can be drawn from this research.

MSC:

90B05	Inventory, storage, reservoirs
90B36	Stochastic scheduling theory in operations research

Keywords:

information distortion; forecasting; exponential smoothing; moving average; correlated demand; linear trend demand process; supply chain management; bullwhip effect

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