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Analysis of the Bullwhip Effect in a Multiproduct Setting with Interdependent Demands

Author

Listed:
  • Srinivasan Raghunathan

    (Naveen Jindal School of Management, The University of Texas at Dallas, Richardson, Texas 75083)

  • Christopher S.Tang

    (Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

  • Xiaohang Yue

    (Lubar School of Business, The University of Wisconsin at Milwaukee, Milwaukee, Wisconsin 53201)

Abstract

The bullwhip effect has been extensively studied primarily based on the analysis of various single-product models with a few exceptions. We extend the single-product analysis to the multiproduct setting of interdependent demand streams with auto-correlation and cross-product correlation, as well as contemporaneous correlation across forecasting errors. We find that interdependency between demand streams plays a critical role in determining the existence and magnitude of the bullwhip effect. Specifically, we consider two operating environments: (a) The firm orders product-specific materials so that the ordering decision is based on the product level; and (b) the firm orders generic materials so that the order decision is based on the category level. We show that, even with demand pooling, a firm operating at the category level can experience a larger bullwhip effect and a larger order variance under certain conditions that depend on the number of products in the category and the demand dependencies.

Suggested Citation

  • Srinivasan Raghunathan & Christopher S.Tang & Xiaohang Yue, 2017. "Analysis of the Bullwhip Effect in a Multiproduct Setting with Interdependent Demands," Operations Research, INFORMS, vol. 65(2), pages 424-432, April.
    • Handle: RePEc:inm:oropre:v:65:y:2017:i:2:p:
    DOI: 10.1287/opre.2016.1571
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