Industrial case-study on the dynamics and sensitivity of a close-coupled production-distribution system†

International Journal of Operations &Amp; Production Management

2003

241

101

This paper compares the bullwhip properties of a Vendor Managed Inventory (VMI) supply chain with those of a traditional "serially-linked" supply chain. The emphasis of this investigation is the comparative impact the two structures have on the "Bullwhip Effect" generated. Particular attention is paid to the manufacturer's production ordering activities as demonstrated using a simulation model based on difference equations. Each of the four important sources of the Bullwhip Effect is documented and considered in turn. The analysis shows that with VMI implementation two sources of the Bullwhip Effect may be completely eliminated, i.e. rationing and gaming or the Houlihan Effect, and the order batching effect or the Burbidge Effect. VMI is also significantly better at responding to rogue changes in demand due to the Promotion Effect or to price induced variations. However the effect of VMI on demand signal processing induced bullwhip or the Forrester Effect is less clear cut. The paper concludes that on balance VMI offers a significant opportunity to reduce the Bullwhip Effect in real-world supply chains.

Section: The Bullwhip Effectmentioning

confidence: 89%

Vendor‐managed inventory and bullwhip reduction in a two‐level supply chain

International Journal of Operations &Amp; Production Management

2003

241

101

“…Firstly it was felt important that it is desirable that like (APIOBPCS) is compared to like as much as possible (VMI-APIOBPCS) in order to gain as much understanding as possible on the fundamental structure of VMI. Secondly, APIOBPCS was chosen for VMI and the traditional supply chain, as it is recognised as good practice, Edghill, Olsmats and Towill [35] incorporates all commonly available forms of information, represents human behaviour (Sterman, [22] and Naim and Towill [34]) and is a well-understood member of the IOBPCS (Towill, [36]) family. The APIOBPCS model can be expressed in words as outlined in the previous section.…”

Section: Description Of the Traditional Supply Chain Simulation Modelmentioning

confidence: 99%

The effect of vendor managed inventory (VMI) dynamics on the Bullwhip Effect in supply chains

International Journal of Production Economics

2003

412

171

The paper compares the expected performance of a Vendor Managed Inventory (VMI) supply chain with a traditional "serially-linked" supply chain. The emphasis of this investigation is the impact these two alternative structures have on the "Bullwhip Effect" generated in the supply chain. We pay particular attention to the manufacturer's production ordering activities via a simulation model based on difference equations. VMI is thereby shown to be significantly better at responding to volatile changes in demand such as those due to discounted ordering or price variations. Inventory recovery as measured by the Integral of Time * Absolute Error (ITAE) performance metric is also substantially improved via VMI. Noise bandwidth, that is a measure of capacity requirements, is then used to estimate the order rate variance in response to random customer demand. Finally, the paper simulates the VMI and traditional supply chain response to a representative retail sales pattern. The results are in accordance with "rich picture" performance predictions made from deterministic inputs.

“…Equation 1 seems to have been "discovered" and "re-discovered" many times by management consultants who provide appropriate software to realise the algorithm. For example, process flow analysis back-up by times series modelling clearly identified an IOBPCS structure located within an automotive supply chain (Edghill et al, 1988). This was at the aggregate level an application advocated by Axsäter (1985).…”

Section: Iobpcs In the Real Worldmentioning

confidence: 96%

Eliminating drift in inventory and order based production control systems

International Journal of Production Economics

2005

An Inventory and Order Based Production Control System lies at the heart of many commercial and bespoke ordering systems based on periodic review of stock and production targets. This simple and elegant control system works well, even when dealing with scenarios in which there are many competing value streams. However, such "interferences" inevitably cause some uncertainty in pipeline delivery times. We show via linear z-transform analysis that the consequences may include the possibility of inventory drift and instability. In this paper we establish the stability boundaries for such systems, and demonstrate an innovative method of eliminating inventory drift due to lead-time effect. This new principle is confirmed by simulation results.