This preview shows page 1. Sign up to view the full content.
Unformatted text preview: nning decisions.
While access to the industry-wide inventory status may be beneficial to the
individual manufacturers, there is a concern whether manufacturers will sincerely share
their true inventory information (see  to ). This is because each party has an
incentive to overstate its inventory level to discourage others from producing more chips
or building additional capacity. If every manufacturer acts selfishly and anticipates the
same behavior of others, information sharing will not be sustained as an equilibrium. It
will be interesting to see whether the proposed horizontal information sharing will
actually take place in spite of the incentive problem.
2.2. Sales Data In the traditional supplier-buyer relationship, companies communicate demand
information exclusively in the form of orders. Indeed, orders from downstream serve as a
critical source of information about future businesses. But if the supplier depends solely
4 on orders for future production planning, a problem arises. Since orders are rocessed
result of various information and conjectures by the buyer, orders data often distort the
true dynamics of the marketplace - a phenomenon called the bullwhip effect ( and
[l0]). Thus, the information transferred in the form of orders tends to be distorted and
can misguide upstream partners in their inventory and production decisions. In
particular, the variance of is often larger than that of and the distortion tends to increase as one moves upstream (see Figure 1). The distortion injects additional
uncertainties into order fulfillment processes and makes demand forecasting even more
difficult. It ultimately hurts the efficiency of the supply chain in the form of excess raw
material inventory, unplanned purchases of supplies, additional manufacturing expenses
created by excess capacity, inefficient utilization and overtimes, excess warehousing
expenses, premium shipping costs, and poor customer service level.
Lee et al (in and The Bullwhip Effect identify four sources of the bullwhip effect: (i) demand signal processing, (ii) rationing game, (iii) order batching and (iv) pric...
View Full Document
This note was uploaded on 11/06/2013 for the course ISYE 6202 taught by Professor Staff during the Fall '08 term at Georgia Institute of Technology.
- Fall '08
- Industrial Engineering