Modelling the Bullwhip Effect under the Implementation of Supply Chain Management Software

Read this article on using software to model the bullwhip effect.

Literatures review

The importance of information quality and the practice of information sharing are well cited and supported by the SCM scholars. Trapero et al. collected weekly data from a manufacturer and a major UK grocery retailer to show the circumstances where information sharing leads to improved forecasting accuracy. Without resorting to unrealistic assumptions, they found significant evidence of benefits through information sharing with substantial improvements in forecast accuracy.

In a study examining the bullwhip effect, Li et al. developed five dimensions of supply chain management practice (as shown as Table 1), and the authors tested the relationships between supply chain management practices, competitive advantages, and organisational performances. The study of Li et al. indicates that SCM practices can have a direct impact on competitive advantage and organisation.

Table 1: List of sub-constructs for supply chain management practice

Sub-constructs Importance in literature (0-10)*
Strategic supplier partnership 7
Customer relationship 6
Level of information sharing 9
Quality of information sharing 10
Postponement 10
* Low to high Source: Li et al., 2006

In a similar vein, Li and Lin found that both information sharing and information quality are influenced positively by trust in supply chain partners and shared vision between supply chain partners. Based on the data collected from 196 organisations, Li and Lin empirically examined the impact of environmental uncertainty, intra-organisational facilitators, and inter-organisational relationships on information sharing and information quality in supply chain management, as shown as Figure 1. Their study also indicates that top management has a positive impact on information sharing but has no impact on information quality. Additionally, their results also show that information sharing and information quality are not impacted by customer uncertainty, technology uncertainty, commitment of supply chain partners, and IT enablers. Li and Lin concluded that supplier uncertainty, shared vision between supply chain partners, and commitment of supply chain partners are the three most important factors between the organisations of supply chains.

Figure 1: Factors that Impact Supply Chain Information Sharing and Quality
Information Sharing and Quality



Reyes et al. applied a case study to illustrate a broad view of an entire supply chain to reveal full product and component life cycle that not only reveals opportunities for cost reduction but also stimulates revenue growth. They concluded that organisations must get more involved in the management of supply chain network of all upstream and downstream firms for reducing the bullwhip effect. Lee and Whang examined the impact of e-business on supply chain integration on four critical dimensions: information integration, synchronised planning, coordinated workflow, and new business models. They found that by adopting e-business approaches businesses can reduce the bullwhip effect and get more effective and flexible. Krol et al. use a qualitative approach to point up the impacts of e-logistics. They also found that the profitability of business will be increased by reducing the bullwhip effect in supply chains.

Based on a survey conducted on the European automotive industry, Díaz and Buxmann remarked that there is a need for transparency in quantifying the added-value of SCM software. In particular, Díaz and Buxmann found that unable to quantify the benefits of SCM software as major concern for the car manufacturers at the time. A decade later, Mittermayer and Rodríguez-Monroy pointed out the difficulty to measure the benefits of SCM software remain as a challenge for organisations to adopt SCM software.

The literature review reveals that matching demand and supply is critical to supply chain and yet the implementation of SCM software is not an easy task. The bullwhip effects in manufacturing sector are well documented, but there is limited evidence suggesting the relationship between the bullwhip effect and SCM software. Therefore, this study aims to fill the gap.