Measure of bullwhip effect considering stochastic disturbance based on price fluctuations in a supply chain with two retailers

This paper establishes a new price-sensitive demand model which considers stochastic disturbance similar to ARMA(1,1) model. We examine the impact of two forecasting methods on the bullwhip effect in a two-stage supply chain with two retailers. It is assumed that two retailers face the same demand model and an order-up-to inventory policy is employed. The lead-time demand is forecasted respectively by the moving average (MA) and exponential smoothing(ES) methods. The effect of various parameters is investigated by numerical simulation and the bullwhip effect under two forecasting methods is compared. The results show that the MA forecasting method is better than the ES method based on our demand process. Besides, conclusions indicate that both the extent of consumers concerning about the historical price volatility and the lead time play significant roles on reducing the bullwhip effect, and stochastic disturbance impacts the bullwhip effect differently based on the lead time. The larger the variance of stochastic disturbance of the retailer which has a longer lead time, the greater the bullwhip effect in the supply chain. The moving average coefficient of stochastic disturbance generally has a little different impact on the bullwhip effect under the different relationship of the lead time between two retailers. Moreover, some proposals are present to help managers to take appropriate measures and select the forecasting method that yields the lowest bullwhip effect. Key–Words: Supply chain, Bullwhip effect, Demand forecasting, Price fluctuations, Stochastic disturbance