Bullwhip in a Multi-Product Production Setting

We consider the bullwhip problem in a multi-product scenario, specifically looking at the impact of product demands on production and inventory cost performance in a factory setting. A Vector Auto-Regressive process of the first order (VAR(1)) is used to represent two different demand processes. The Order-Up-To (OUT) policy is used to manage inventory levels and generate production orders. The two demand processes could represent two different products, or the same product being sold to two different retailers. In this manner we can quantify the impact of “inventory pooling†on performance. The two demand streams could be satisfied by production on a single production line (with or without a changeover), or production on two separate production lines. In this way we can investigate the issue of “capacity pooling†. We provide a real-life case study to motivate our model and support our technical findings. We discuss the implications of our research against the background of the current proliferation of “SKU customization†in the fast moving consumer goods industry.