Presentation Title

The Effects of Bullwhip on Item Level Performance

Location

Room 2905 B

Session Format

Paper Presentation

Research Area Topic:

Business Administration - Logistics

Co-Presenters, Co- Authors, Co-Researchers, Mentors, or Faculty Advisors

Dr. Gerard Burke

Dr. Alan Mackelprang

Dr. Geoffrey Dick

Abstract

Background

Inventory management decisions regarding levels of stock and timing of replenishment orders often seek to balance costs of having too much on-hand versus having too little. Managing inventory information and deliveries are a major operational challenge for firms as they try simultaneously to reduce costs and improve customer service.

Research Objectives

This research investigates how information and material distortions affect the inventory management performance of a major retailer. Bullwhip effects (BWEs) are individually calculated for dozens of products carried by dozens of retail locations. Relationships between item/store-level BWEs and item/store-level performance measures are tested and reported.

Study Design

The model is a simultaneous equation system with one exogenous variable (BWE information distortion) and three endogenous variables (BWE material distortion, abnormal inventory and gross margin ratio) of which two of them are endogenous regressors (BWE material distortion and gross margin ratio). The study utilizes structural equation modeling (SEM) for analyzing the simultaneous system of equations to capture the model under investigation.

Dataset and Source

A large longitudinal dataset was obtained from a retail Fortune 50 company with the unit of analysis item/store, consisting of 2,051,967 observations (236 item * 211 Store * 53 weeks), of which 370,974 were used.

Principal Findings and Conclusion

Results suggest that amplification of information distortion has a positive effect on amplification of material distortion, amplification of material distortion has a positive effect on abnormal inventory while amplification of information does not, and both BWE constructs have an inverse effect on financial performance (gross margin) to what originally hypothesis.

Implications and Learning Objectives

From a managerial perspective, it is important to understand that both amplification distortion variables, although related, are different. Understanding their differences assists managers in the development of inventory strategies that address their respective characteristics, both individually and collectively.

Keywords

Bullwhip effect, Inventory management, Performance measurement, Empirical methods, Structural equation modeling

Presentation Type and Release Option

Presentation (Open Access)

Start Date

4-24-2015 9:30 AM

End Date

4-24-2015 10:30 AM

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Apr 24th, 9:30 AM Apr 24th, 10:30 AM

The Effects of Bullwhip on Item Level Performance

Room 2905 B

Background

Inventory management decisions regarding levels of stock and timing of replenishment orders often seek to balance costs of having too much on-hand versus having too little. Managing inventory information and deliveries are a major operational challenge for firms as they try simultaneously to reduce costs and improve customer service.

Research Objectives

This research investigates how information and material distortions affect the inventory management performance of a major retailer. Bullwhip effects (BWEs) are individually calculated for dozens of products carried by dozens of retail locations. Relationships between item/store-level BWEs and item/store-level performance measures are tested and reported.

Study Design

The model is a simultaneous equation system with one exogenous variable (BWE information distortion) and three endogenous variables (BWE material distortion, abnormal inventory and gross margin ratio) of which two of them are endogenous regressors (BWE material distortion and gross margin ratio). The study utilizes structural equation modeling (SEM) for analyzing the simultaneous system of equations to capture the model under investigation.

Dataset and Source

A large longitudinal dataset was obtained from a retail Fortune 50 company with the unit of analysis item/store, consisting of 2,051,967 observations (236 item * 211 Store * 53 weeks), of which 370,974 were used.

Principal Findings and Conclusion

Results suggest that amplification of information distortion has a positive effect on amplification of material distortion, amplification of material distortion has a positive effect on abnormal inventory while amplification of information does not, and both BWE constructs have an inverse effect on financial performance (gross margin) to what originally hypothesis.

Implications and Learning Objectives

From a managerial perspective, it is important to understand that both amplification distortion variables, although related, are different. Understanding their differences assists managers in the development of inventory strategies that address their respective characteristics, both individually and collectively.