Behavioral causes of the bullwhip effect and the observed value of inventory information

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Abstract

The tendency of orders to increase in variability as one moves up a supply chain is commonly known as the bullwhip effect. We study this phenomenon from a behavioral perspective in the context of a simple, serial, supply chain subject to information lags and stochastic demand. We conduct two experiments on two different sets of participants. In the first, we find the bullwhip effect still exists when normal operational causes (e.g., batching, price fluctuations, demand estimation, etc.) are removed. The persistence of the bullwhip effect is explained to some extent by evidence that decision makers consistently underweight the supply line when making order decisions. In the second experiment, we find that the bullwhip, and the underlying tendency of underweighting, remains when information on inventory levels is shared. However, we observe that inventory information helps somewhat to alleviate the bullwhip effect by helping upstream chain members better anticipate and prepare for fluctuations in inventory needs downstream. These experimental results support the theoretically suggested notion that upstream chain members stand to gain the most from information-sharing initiatives.

Original languageEnglish (US)
Pages (from-to)323-336
Number of pages14
JournalManagement Science
Volume52
Issue number3
DOIs
StatePublished - Mar 1 2006

Keywords

  • Behavioral experiments
  • Bullwhip effect
  • Dynamic decision making
  • Information sharing
  • Supply chain management

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