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An empirically-simulated investigation of the impact of demand forecasting on the bullwhip effect: Evidence from U.S. auto industry

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  • Chiang, Chung-Yean
  • Lin, Winston T.
  • Suresh, Nallan C.

Abstract

This study empirically examines the impacts of three major aspects of demand forecasting on the magnitude of the bullwhip effect. Three research questions are addressed to investigate the association between (1) forecast accuracy, (2) aggregate forecasting, and (3) responsive forecasting and the bullwhip effect. Using forecasted demand generated from popular time-series forecasting models and real-life demand data, the study investigates the relationship between the forecasted results and the consequential bullwhip effect. The findings show that the forecasting methods used lead to the variation of the bullwhip effect. Moreover, the lead time reduction and the stable demand forecast are beneficial to reduce the bullwhip effect. However, our empirical results differ from previous findings in two ways: (i) improving forecast accuracy does not necessarily reduce the bullwhip effect and (ii) aggregate forecasting does not always reduce the bullwhip effect.

Suggested Citation

  • Chiang, Chung-Yean & Lin, Winston T. & Suresh, Nallan C., 2016. "An empirically-simulated investigation of the impact of demand forecasting on the bullwhip effect: Evidence from U.S. auto industry," International Journal of Production Economics, Elsevier, vol. 177(C), pages 53-65.
    • Handle: RePEc:eee:proeco:v:177:y:2016:i:c:p:53-65
    DOI: 10.1016/j.ijpe.2016.04.015
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    3. Ahmed Shaban & Mohamed A. Shalaby & Giulio Di Gravio & Riccardo Patriarca, 2020. "Analysis of Variance Amplification and Service Level in a Supply Chain with Correlated Demand," Sustainability, MDPI, vol. 12(16), pages 1-27, August.
    4. Dass, Mayukh & Reshadi, Mehrnoosh & Li, Yuewu, 2023. "An exploration of ripple effects of advertising among major suppliers in a supply chain network," Journal of Business Research, Elsevier, vol. 169(C).
    5. Li, Qinyun & Gaalman, Gerard & Disney, Stephen M., 2023. "On the equivalence of the proportional and damped trend order-up-to policies: An eigenvalue analysis," International Journal of Production Economics, Elsevier, vol. 265(C).
    6. Sima M. Fortsch & Jeong Hoon Choi & Elena A. Khapalova, 2022. "Competition can help predict sales," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(2), pages 331-344, March.
    7. Lina Tang & Taho Yang & Yiliu Tu & Yizhong Ma, 2021. "Supply chain information sharing under consideration of bullwhip effect and system robustness," Flexible Services and Manufacturing Journal, Springer, vol. 33(2), pages 337-380, June.
    8. Jin, Ming & DeHoratius, Nicole & Schmidt, Glen, 2017. "In search of intra-industry bullwhips," International Journal of Production Economics, Elsevier, vol. 191(C), pages 51-65.
    9. Patil, Chintan & Prabhu, Vittaldas, 2024. "Supply chain cash-flow bullwhip effect: An empirical investigation," International Journal of Production Economics, Elsevier, vol. 267(C).

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