Local optimisation,in terms of local forecasting and individual cost optimisation,and a lock of cooperation are at the heart of the bullwhip problem.
A good example for local optimisation is the batch order phenomenon.In practice,ordering entails fix cost, e.g. ordering in full truck loads is cheaper then ordering smaller amounts.Furthermore,many suppliers offer volume discounts when ordering larger amounts.
Hence,there is a certain incentive for individual players to hold back orders and only place aggregate orders.This behaviour however aggravates the problem of demand forecasting,because very little information about actual demand is transported in such batch orders.
And batch ordering,of course,contributes directly to the bullwhip effect by unnecessarily inflating the orders.
Local optimisation,in terms of local forecasting and individual cost optimisation,and a lock of cooperation are at the heart of the bullwhip problem.A good example for local optimisation is the batch order phenomenon.In practice,ordering entails fix cost, e.g. ordering in full truck loads is cheaper then ordering smaller amounts.Furthermore,many suppliers offer volume discounts when ordering larger amounts.Hence,there is a certain incentive for individual players to hold back orders and only place aggregate orders.This behaviour however aggravates the problem of demand forecasting,because very little information about actual demand is transported in such batch orders.And batch ordering,of course,contributes directly to the bullwhip effect by unnecessarily inflating the orders.
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