Behavioral causes of the bullwhip effect: an analysis using linear control theory

M. Udenio, E. Vatamidou, J.C. Fransoo, N.P. Dellaert

Research output: Contribution to journalArticleScientificpeer-review

Abstract

It has long been recognized that the bullwhip effect in real life depends on a behavioral component. However, non-experimental research typically considers only structural causes in its analysis. In this paper, we study the impact of behavioral biases on the performance of inventory/production systems modeled through an APVIOBPCS (Automatic Pipeline, Variable Inventory, Order Based Production Control System) design using linear control theory. To explicitly model managerial behavior, we allow independent adjustments to inventory and pipeline feedback loops. We consider the biases of smoothing/over-reaction to inventory and pipeline mismatches, and the under/over-estimation of the pipeline. To quantify the performance of the system, we first develop a new procedure to determine the exact stability region of the system and we derive an asymptotic stability region that is independent of the lead time. Afterwards, we analyze the effect of different demand signals on order and inventory variations. Our findings suggest that normative policy recommendations must take demand structure explicitly into account. Finally, through extensive numerical experiments, we find that the performance of the system depends on the combination of the behavioral biases and the structure of the demand stream.
Original languageEnglish
Pages (from-to)980-1000
Number of pages21
JournalIISE Transactions
Volume49
Issue number10
DOIs
Publication statusPublished - 3 Oct 2017

Keywords

  • Control theory
  • behavioral operations
  • bullwhip effect
  • stability
  • supply chain management

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