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

Abstract

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.

Evaluating vendor-managed inventory (VMI) in non-traditional environments using simulation

“…They concluded that the appropriative delay depends on the level of aggregation and order scheduling. (Disney and Towill, 2003a) and (Disney and Towill, 2003b) produced two articles regarding VMI and the bullwhip effect. The first article demonstrates, through mathematical modeling and simulation that VMI helps to dampen the bullwhip effect focusing on that portion of the bullwhip effect created by what the authors term the "Forrester effect" (consisting of non-zero lead times and demand signaling processing).…”

Integrating Transport into Supply Chains: Vendor Managed Inventory (VMI)

“…Table 1.1 contains the simulation results for the non-transport performance measures. It can be seen that VMI delivers consistently lower levels of demand amplification than the traditional scenario, findings that are in line with those reported by Disney and Towill (2003). In both scenarios the level of amplification is independent of the vehicle capacity.…”

On the Bullwhip Avoidance Phase: supply chain collaboration and order smoothing

“…Disney and Towill (2003c) report that the concept was initially discussed by Magee (1958), in a presentation of a conceptual framework for designing a production control system, pointed by the authors as the pioneer model of Vendor Managed Inventory. Two years later, the publication of Clark and Scarf (1960) Dejonckheere et al 2004, Disney et al 2004a, Geary et al 2006, Towill et al 2007, Disney and Lambrecht 2008.…”