Analysis of the bullwhip effect with order batching in multi-echelon supply chains

Abstract

Purpose The purpose of this paper is to analyze the effect of batching on bullwhip effect in a model of multi‐echelon supply chain with information sharing. Design/methodology/approach The model uses the system dynamics and control theoretic concepts of variables, flows, and feedback processes and is implemented using iThink® software. Findings It has been seen that the relationship between batch size and demand amplification is non‐monotonic. Large batch sizes, when combined in integer multiples, can produce order rates that are close to the actual demand and produce little demand amplification, i.e. it is the size of the remainder of the quotient that is the determinant. It is further noted that the value of information sharing is greatest for smaller batch sizes, for which there is a much greater improvement in the amplification ratio. Research limitations/implications Batching is associated with the inventory holding and backlog cost. Therefore, future work should investigate the cost implications of order batching in multi‐echelon supply chains. Practical implications This is a contribution to the continuing research into the bullwhip effect, giving supply chain operations managers and designers a practical way into controlling the bullwhip produced by batching across multi‐echelon supply chains. Economies of scale processes usually favor large batch sizes. Reducing batch size in order to reduce the demand amplification is not a good solution. Originality/value Previous similar studies have used control theoretic techniques and it has been pointed out that control theorists are unable to solve the lot sizing problem. Therefore, system dynamic simulation is then applied to investigate the impact of various batch sizes on bullwhip effect.