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Chapter 11

Q. 11.S2

CALCULATING THE BULLWHIP EFFECT. Chieh Lee Metals, Inc. orders sheet metal and transforms it into 50 formed tabletops that are sold to furniture manufacturers. The table below in Figure 11.S2a shows the weekly variance of demand and orders for each major company in this supply chain for tables. Each firm has one supplier and one customer, so the order variance for one firm will equal the demand variance for its supplier. Analyze the relative contributions to the bullwhip effect in this supply chain.

APPROACH \blacktriangleright Use Equation (S11-2) to calculate the bullwhip measure for each firm in the chain.

Bullwhip = \frac{Variance  of  orders}{Variance  of  demand} = \frac{\sigma^2_{orders}}{\sigma^2_{demand}}               (S11-2)


Verified Solution

SOLUTION \blacktriangleright The last column of the table displays the bullwhip measure for each firm.
INSIGHT \blacktriangleright This supply chain exhibits a classic bullwhip effect. Despite what might be a very stable demand pattern at the retail level, order sizes to suppliers vary significantly. Chieh Lee should attempt to identifiy the causes for her own firm’s order amplification, and she should attempt to work with her supply chain partners to try to reduce amplification at every level of the chain.
LEARNING EXERCISE \blacktriangleright Suppose that Chieh Lee is able to reduce her bullwhip measure from 2.50 to 1.20. If the measure for all other firms remained the same, what would be the new reduced variance of orders from Metal Suppliers? [Answer: 961.]
RELATED PROBLEMS \blacktriangleright S11.6, S11.7, S11.8, S11.9