Robert Boute

Exploring the bullwhip effect by means of spreadsheet simulation

An important supply chain research problem is the bullwhip effect: demand fluctuations increase as one moves up the supply chain from retailer to manufacturer. It has been recognized that demand forecasting and ordering policies are two of the key causes of the bullwhip effect. In this paper we present a spreadsheet application, which explores a series of replenishment policies and forecasting techniques under different demand patterns. It illustrates how tuning the parameters of the replenishment policy induces or reduces the bullwhip effect. Moreover, we demonstrate how bullwhip reduction (order variability dampening) may have an adverse impact on inventory holdings. Indeed, order smoothing may increase inventory fluctuations resulting in poorer customer service. As such, the spreadsheets can be used as an educational tool to gain a clear insight into the use or abuse of inventory control policies and improper forecasting in relation to the bullwhip effect and customer service.

An Analysis of Inventory Turnover in the Belgian Manufacturing Industry, Wholesale and Retail and the Financial Impact on Inventory Reduction

Various inventory studies have been published in the last decades. Some studies emphasize the importance of low inventories, other examine the evolution of inventories over time and especially focus on the impact of the just-in-time (JIT) revolution. The aim of this paper is to investigate the level of inventories held by Belgian companies at one moment in time, namely May 2004. First we examine differences in inventory ratios between manufacturing industry sectors as well as between wholesale and retail. We find empirical evidence that the type of production process is the most important driver for work in process inventory. The finished goods inventory ratio also differs significantly among industry sectors, but here the reasons for the difference are harder to distinguish. Finally we find the inventory ratio to be significantly higher in retail than in wholesale. Furthermore, we examine the financial impact of inventories in the manufacturing industry. We find that companies with very high inventory ratios have more chance to be bad financial performers. Regression analyses partially support the hypothesis of a negative relationship between inventory ratio and financial performance but significant results could not be obtained for all sectors.

Extending the Production Dice Game

Purpose: The production dice game is a powerful learning exercise focusing on the impact of variability and dependency on throughput and work-in-process inventory of flow lines. This paper seeks to extend the basic dice game along the following lines. First, it will allow operations to take place concurrently as opposed to sequentially, which works better in a classroom setting. Second, it will allow both starvation and blocking of the line. Third, it will consider balanced lines with workstations characterized by different degrees of variability. Finally, it aims to use different sets of dice in order to represent a wide range of variation coefficients of the production line. The obtained insights can be extended to a supply chain context as well. The developed game can be played on-line and the software is freely downloadable.

A Smoothing Replenishment Policy with Endogenous Lead Times

We consider a two echelon supply chain: a single retailer holds a finished goods inventory to meet an i.i.d. customer demand, and a single manufacturer produces the retailers replenishment orders on a make-to-order basis. In this setting the retailers order decision has a direct impact on the manufacturers production. It is a well known phenomenon that inventory control policies at the retailer level often propagate customer demand variability towards the manufacturer, sometimes even in an amplified form (known as the bullwhip effect). The manufacturer however prefers to smooth production, and thus he prefers a smooth order pattern from the retailer. At first sight a decrease in order variability comes at the cost of an increased variance of the retailers inventory levels, inflating the retailers safety stock requirements. However, integrating the impact of the retailers order decision on the manufacturers production leads to new insights. A smooth order pattern generates shorter and less variable (production/replenishment) lead times, introducing a compensating effect on the retailers safety stock. We show that by including the impact of the order decision on lead times, the order pattern can be smoothed to a considerable extent without increasing stock levels. This leads to a situation where both parties are better off.