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SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT

This study explores the bullwhip effect in supply chains through simulation and experimental analysis, examining how ordering methods influence inventory levels and variability. It investigates cognitive biases and heuristics that impact decision-making under uncertainty, utilizing the Beer Distribution Game as a framework. Results reveal significant amplification of orders due to misinterpretation of feedback and inherent biases. The research aims to identify behavioral mechanisms driving the bullwhip effect and proposes future avenues to improve supply chain performance.

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SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT

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  1. SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT J. PEREIRA, F. PAREDESFacultyof Engineering, Universidad Diego Portales, Santiago de Chile C. LAVIN, L.S. CONTRERAS-HUERTA, C. FUENTES, Faculty of Psychology, Universidad Diego Portales, Santiago de Chile

  2. Motivation BeerDistributionGame (SupplyChainStructure): L factory wholesaler retailer

  3. Motivation BehaviouralExperiment Figure 1. Amplification (bullwhipeffect) of orders and inventorylevels

  4. Motivation • [Lee et al. 2000;Takahashi and Myreshka, 2004; Warburton 2004; Pereira et al., 2009] • MAIN REASONS OF BULLWHIP-EFFECT: • Demandprocess • Forecastingmethods • Orderingbehaviour • Lead time • Price variations

  5. Motivation • [Sterman 2006; Wu and Katok, 2006; Croson et al., 2013] • BEHAVIOURAL REASONS: • Cognitiveaspects • Decisionmakerheuristics and biases • Properties of orderingmethods • Perception of uncertainty

  6. Agenda • SCM model • Bullwhip-effect • Judgmentunderuncertainty • Experiments • Conclusions and FutureWork

  7. Supplychainmanagementmodel

  8. OrderingMethods

  9. OrderEquation Push Expectedinventorylevel Expectedwork-in-processlevel Pull

  10. Bullwhipeffect Theoretical ! Figure 3. Amplification at stages 1, 2, 3 (L=2)

  11. Bullwhipeffect Theoretical !

  12. ResearchQuestions • Behaviouralreasons of bullwhipeffect? • Heuristics? • Biases? • Methoddependent?

  13. Judgment under uncertainty(Kahneman & Tversky, 1974) • Heuristic mind processing • Adaptation behaviour • Simple probabilistic judgement • Systematic bias

  14. Heuristics • REPRESENTATIVENESS • Judgement in terms of similarity HEURISTICS • AVAILABILITY • Judgment in terms of simplicity of evocation • ADJUSTMENT AND ANCHORING • judgment in terms of anevocated anchor

  15. Somebiases • REPRESENTATIVENESS • Insensivitytoprior probabilityof outcomes • Aversiontolosses • Regressiontowardthe mean • AVAILABILITY • Retrievability of instances • Imaginability • Illusorycorrelation HEURISTICS • ADJUSTMENT AND ANCHORING • Insufficientadjustment • Evaluation of conjunctive and disjunctiveevents

  16. Experiments • SC model • Uncertaindemandprocess • Experiment #1: no instruction • Experiment#2: pullinstruction

  17. Experiment #1 Figure 4. Experimentsetting • Veryhighinitialinventorylevel (N=1000) • Lowvariabilitydemandprocess (μ=100; σ=10%) • Participants are notinstructedoninventorymanagement

  18. Results #1 Figure 5. Amplification at stages 1, 2, 3 (L=2); the case of 4 groups

  19. Results #1 Table2. Amplification (no instructiontoparticipants)

  20. Questions Push feedback Pull • Do peopleconsiderfeedback? • Disregardingfeedback, induce bias? • Whatbiases?

  21. Orderpredictability #1 Table3. Multipleregressionresults (D: demand, I: inventory, OP: work-in-process)

  22. Mainresults #1 • Peopledisregardfeedback • They use heuristicsand performverybad • Bias: Substitution of attributes • Question: • Howcouldpeopleimprove performance?

  23. Experiment # 2 • Samesupplychainsetting • Very-highinitialinventorylevel (N=2000) • Medium-variabilitydemandprocess (μ=200; σ=50%) • Participants are instructedonpull: • Order = consumption • Keepinventoryunder control

  24. Results #2-1

  25. Results #2-2

  26. Results #2-3

  27. Results #2-4

  28. Results #2-5

  29. Results #2-6

  30. Conclusions • Sensitivitytoinventorycosts? • Cognitive variables in place • heuristics and biases • Achievement of thetask? • groupswithverybad performance • Somegroups are verygood • Facinguncertainty? • substitutionof attributebias • Simple dimensional approach (1 or 2) • Disregardingfeedback

  31. Conclusions • Facingtheinventorydynamics? • Overreactiontopossiblenegativescenario • Anchoring and adjustmentheuristic • Futurework: • Levels of perceiveduncertainty • Management people

  32. REFERENCES

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