Manufacturing lot sizing as a source of the Bullwhip Effect: a case study of electronics and furniture supply chains
by Annukka Hejazi, Olli-Pekka Hilmola
International Journal of Services and Operations Management (IJSOM), Vol. 2, No. 3, 2006

Abstract: The information distortion problem, known as the Bullwhip Effect, is a well-known and continuous concern for manufacturing-related supply chains. One of the main causes of the Bullwhip Effect identified in the literature is the order batching, where actors for example, favour larger lot sizes in their operations as compared to actual customer orders. It is usually explained that this type of behaviour is triggered by rational decisions made in a local context, where the actor tries to minimise own total operational costs. However, we argue in this paper that lot-sizing decisions of an upstream member may also cause order batching at the downstream level of the supply chain, and thus be a major source of the Bullwhip Effect. Therefore, the members of the supply chain seem not only to be locally opportunistic, but also their decisions are based on variables identified in the supply chain level, and most often decisions are made knowing the abilities of upstream manufacturing. We base our research findings on two case studies carried out in the local furniture and international electronics supply chain. On the basis of these two case studies, we argue that production decoupling (make-to-stock versus assembly-to-order) point as well as transfer batching plays a vital role in the management of the Bullwhip Effect.

Online publication date: Tue, 16-May-2006

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