Supply Chain Bullwhip Effect: An Economic Mechanism To Explain

One important research problem in supply chain management thathas drawn much attention is the information distortion phenomenonknown as the bullwhip effect, which relates to the theory ofmanagement, systems engineering, operational research, mathematicstat, and etc. In this paper, we focus on the economic mechanism ofthe bullwhip effect. The analysis includes both qualitative andquantitative aspects.In this thesis, firstly we introduce some basic concept of supplychain management which was involved in the bullwhip effect.Secondly, we review the research course of the bullwhip effect, thenbring forward an enlarged definition of the bullwhip effect, i.e. aphenomenon where the position and the characteristics of demandcurve change from a downstream firm to a upstream firm along asupply chain. Based on this definition, under condition of completelycompetitive market and monopoly, we study the economic mechanismof the bullwhip effect. The results show that the existence and thefeatures of the bullwhip effect depend on the downstream firm'sforecasting technique, cost function and decision behavior. Finally,the practical implications are given by numerical examples.