ABC, Inc. is a retailer that has recently realized the significant impact of the bullwhip effect on its supply chain. The wholesaler that supplies ABC, Inc. would like to quantify the bullwhip effect by comparing the variability of the orders they receive from ABC, Inc. with the variability of the customer orders that ABC, Inc. observes. Specifically, they select a typical product with a lead time of 5 weeks (i.e., it takes the retailer 5 weeks to receive an order from the wholesaler). Also, assume that the retailer uses a moving average of 8 periods to forecast the demand for this product.
a. Quantify the bullwhip effect (i.e., how many times is the variable of orders placed by the retailer to the wholesaler larger than the variability of orders placed from the customer to the retailer?)
b. Quantify the bullwhip effect if the lead time remains at 5 weeks and the retailer uses a moving average of 16 periods to forecast demand.
c. Quantify the bullwhip effect if the lead time is reduced to 2 weeks and the retailer uses a moving average of 8 periods to forecast demand.
d. Quantify the bullwhip effect if the lead time is reduced to 2 weeks and the retailer uses a moving average of 16 periods to forecast demand.
e. Discuss any managerial implications in relation to parts a through d.