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Avoiding the bullwhip effect using Damped Trend forecasting and the Order-Up-To replenishment policy

Li, Qinyun, Disney, Stephen M. and Gaalman, Gerard 2014. Avoiding the bullwhip effect using Damped Trend forecasting and the Order-Up-To replenishment policy. International Journal of Production Economics 149 , pp. 3-16. 10.1016/j.ijpe.2013.11.010

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We study the Damped Trend forecasting method and its bullwhip generating behaviour when used within the Order-Up-To (OUT) replenishment policy. Using z-transform transfer functions we determine complete stability criteria for the Damped Trend forecasting method. We show that this forecasting mechanism is stable for a much larger proportion of the parametrical space than is generally acknowledged in the literature. We provide a new proof to the known fact that the Naïve, Exponential Smoothing and Holts Method forecasting, when used inside the OUT policy, will always generate bullwhip for every possible demand process, for any lead-time. Further, we demonstrate the Damped Trend OUT system behaves differently. Sometimes it will generate bullwhip and sometimes it will not. Bullwhip avoidance occurs when demand is dominated by low frequency harmonics in some instances. In other instances bullwhip avoidance happens when demand is dominated by high frequency harmonics. We derive sufficient conditions for when bullwhip will definitely be generated and necessary conditions for when bullwhip may be avoided. We verify our analytical findings with a numerical investigation.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Centre for Advanced Manufacturing Systems At Cardiff (CAMSAC)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Uncontrolled Keywords: Damped trend forecasting; Order-Up-To replenishment policy; Bullwhip; Stability; z-transform; Fast Fourier transform; Frequency response
Publisher: Elsevier
ISSN: 0925-5273
Date of First Compliant Deposit: 30 March 2016
Date of Acceptance: 11 November 2013
Last Modified: 20 Jan 2021 10:12

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