Statistical process control approach to reduce the bullwhip effect

Abstract

The bullwhip effect is a pervasive problem in multi echelon supply chains that results in inefficient production operations and higher inventory levels. The causes of the bullwhip effect are well understood in industry and academia. Quantitative and qualitative solutions to attenuate this effect have been proposed in various research studies. In this research a quantitative solution in the form of a Statistical Process Control (SPC) based inventory management system is proposed that reduces the bullwhip effect while reducing inventory without compromising service level requirements for a variety of products. The strength of this methodology is in its effectiveness in reducing bullwhip for fast moving products in the mature phase of their lifecycles where improving production efficiency and lowering inventory investment are critical. However, fill rate issues are observed for slow moving products and therefore, the methodology is not recommended for such products. Finally, the application of this methodology to reduce the bullwhip effect is illustrated for a product family of a medical devices company. The results for the different classes of products in this family are discussed.