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The impact of exponential smoothing forecasts on the bullwhip effect

✍ Scribed by Frank Chen; Jennifer K. Ryan; David Simchi-Levi

Publisher
John Wiley and Sons
Year
2000
Tongue
English
Weight
351 KB
Volume
47
Category
Article
ISSN
0894-069X

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✦ Synopsis

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.

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