The Bullwhip Reduction in Supply Chains with Simple Order-Up-To Policy

The bullwhip problem in supply chain is first outlined. It´s followed by the overview of bullwhip measures both in statistical and control engineering approaches. Then a widely researched simple Order-Up-To (OUT) policy is presented. To find a way to reduce the variance amplification, we tried the optimal MMSE forecast to AR(1) demand process. After applying a novel metric from discrete control theory, the exact analytical expressions of variance amplification are obtained. Further investigation shows several insights about how to mitigate the bullwhip effect in certain type of supply chain concerned in this paper. In despite of the variance amplification characteristic guaranteed by most researchers, this proves that the bullwhip effect is controllable even within simple OUT policy. Besides replenishment rules, we conclude in this paper that the demand patterns and forecasting methods also play an important role in variance decreasing.