Bullwhip Effect In Supply Chain Management And VMI Strategy

Since 1990s, People have gradually understood that the competition between companies depends more on the supply chain area. So SCM draws more and more attention from both industries and academic field. High-efficient SCM can help a company to build its core competency, however, Bullwhip effect, as a unique phenomenon in SCM, has a serious negative affect on the efficiency of the whole chain. So it is very important and useful to understand the root cause of bullwhip effect and work on its solutions. This paper carries out a research on the bullwhip effect caused by the information distortion in the supply chain and the VMI solution to it. The paper includes parts as follows:(1) Introduces the SCM theory and puts forward the basic conception of the bullwhip effect and its negative affect on SCM in details.(2)Analyzes the external root causes of the bullwhip effect and explain the cause in an economic concept based on Principal-Agent theory.(3)Quantifies the bullwhip effect and simulates. Using mathematics method, the author forms a simple two-level supply chain model with only one supplier, one retailer to quantify the bullwhip effect and proves that the bullwhip effect will be magnified from lower to upper level of the supply chain. Besides, author also utilizes system dynamic model to give a clear picture of the bullwhip effect in a three-level supply chain.(4)Works on VMI strategy, which can smooth the information sharing process in the supply chain. Also by means of mathematics method, this paper proves that VMI can reduce the totally inventory related cost of a supply chain. This part also introduces supporting technology of VMI(5)Finally, a case study of what dose DELL World Wide Procurement do to reduce bullwhip effect and how dose it implement VMI.