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The Bullwhip Effect Seminar report

This is a simulation approach for analysis of the bullwhip effect and net-stock amplification in a three-echelon supply chain considering step-changes in the production rates during a product‟s life-cycle demand. The analysis is focused around highly complex and engineered products that have relatively longer production life- cycle. Here analyze 3 stages of the product life-cycle including very low volumes during product introduction, peak demand, and eventual decline toward the end of the life- cycle. The simulation results show that performance of a system as a whole deteriorates when there is a step-change in the life-cycle demand. While restriction in production capacity does not significantly impact the bullwhip effect, it increases the net stock amplification significantly for the supply chain setting under consideration.

The impact made by bullwhip effect during each stages of production life cycle are different. During the first few months of introduction, the product is typically produced at low volume to address any production quality and supply issues. Given the complexity of the assembly and other production facilities, it is not practical to change the production volume continuously due to the need to „„balance‟‟ the assembly line and the supply chain. Then production volume typically undergoes step changes at distinct period as the demand picks up for the product in the market place, after couple of years product shift to decline phase due to introduction of more competitive products in the market place with better functions, features, and option content. This paper is based on the North-American automotive Original Equipment Manufacturers (OEMs), is that they predominantly operate in a "build to stock" production mode rather than a "build to order" mode. Hence, this study focuses more on modeling and control of the bullwhip effect in the supply networks as a function of fluctuations in the OEM final-assembly (FA) line production volume rather than end customer "demand".

This has been made to model the bullwhip effect and NS amplification in a three-stage automotive supply chain system considering capacity constraint and step-changes in OEM production volume due to product life-cycle considerations and extend the existing work of Chen et al. (2000b) by developing analytical expressions for both the bullwhip effect and the NS amplification for single stage supply chain with different ordering sequence in a replenishment cycle.
The bullwhip effect is one of the most widely investigated phenomena in the modern day supply chain management research. Lee et al. (1997) first introduced the term "bullwhip effect" to explain this phenomenon, it was first described by Forrester (1961) to demonstrate the demand and variance amplification in an industrial system. Forrester‟s idea has been studied further and illustrated through the "Beer Distribution Game" a simulation based teaching tool to explain the economic dynamics of stock management problem (Sterman, 1989). Lee et al (1997) identified the following four reasons for the bullwhip problem: demand signal processing, the rationing game, order batching, and price variations. Since then, there have been a significant number of studies on this problem with respect to all the major causes of the bullwhip effect.

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