A Fuzzy Approach to Taming the Bullwhip Effect

We consider a series of companies in a supply chain, each of which orders from its immediate upstream members. Usually, the retailer’s orders do not coincide with the actual retail sales, as the retailer tries to ”outguess” the coming actual demand from the market. Similarly, the wholesaler’s orders to the producer do not coincide with the actual demand of the retailers. The bullwhip effect refers to the phenomenon where orders to the supplier tend to have larger variance than sales to the buyer (i.e. demand distortion), and (similarly) the orders to the producer will have a still larger variance. Thus the distortion propagates upstream in an amplified form (i.e. variance amplification). We show that if the members of the supply chain share information and agree on better and better fuzzy estimates (as time advances) on future sales for the upcoming period then the bullwhip effect can be significantly reduced.