Effect of Forecasting on Bullwhip Effect in Supply Chain Management

Abstract

Most of the recent research in supply chain management has focussed on bullwhip effect (BWE) which is a phenomenon in which distorted information from one end of a supply chain to the other can hamper the supply chain performance. The impact of BWE is to increase manufacturing cost, inventory cost, replenishment lead time, transportation cost etc. Various factors can cause this effect, one of which is customer demand forecasting technique. In this paper, the impact of forecasting methods on the bullwhip effect has been studied. This study highlights the effect of forecasting technique, order processing cost and demand pattern on BWE. The effects of two forecasting techniques namely moving average and exponential smoothing on BWE have been compared. Simulation experiments have been carried out using full factorial design involving three factors such as order processing cost, method and demand pattern. The BWE has been evaluated using MATLAB code. The results were analyzed using ANOVA and finally the optimal parameters for minimum values of BWE have been determined.