Quantifying the Bullwhip Effect in inventory management policies

We investigate the bullwhip effect (BE) resulting from order batching under EOQ inventory management policy. We first analytically derive the exact formulae to quantify the increased variability of orders due to batching for a two-echelon supply chain. Our model assesses BE as the variance ratio, that is the ratio between the demand variance at the downstream and at the upstream stages of the supply chain. Robustness and correctness of the model are validated by mean of a simulation tool properly developed to this extent. The comparison shows a good correspondence between analytical results and simulated ones.