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Vertical Contracts in a Supply Chain and the Bullwhip Effect

23rd March 2020
KCG Secretary
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Authors: Zhan Qu and Horst Raff (Management Science, 2021, 67(6): 3744–3756)

This paper shows that decentralized supply chains, in which upstream firms use linear wholesale prices, may experience lower upstream production and downstream sales volatility than vertically integrated supply chains, and may be less susceptible to the bullwhip effect where the variance of upstream production exceeds the variance of downstream sales. The reason is that decentralized supply chains exhibit a price effect, whereby upstream producers raise wholesale prices in the case of positive demand shocks and lower wholesale prices in the case of negative demand shocks. Whereas upstream producers benefit from the price effect and thus from a dampening of the bullwhip effect, downstream firms may lose and overall supply chain profit may decrease.

Keywords: bullwhip effect, production smoothing, inventory, supply chain, demand uncertainty

 

DOI: https://doi.org/10.1287/mnsc.2020.3630

 


Involved Team members

  • Prof. Horst Raff, Ph.D.

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Project 1
Cross-cultural differences in the perception of corporate social responsibility and consumer social responsibility along global supply chains
Project 1
Experimental studies of moral responsibility in global supply chains
Project 1
Modelling economic and social dimensions of global supply chains
Project 1
Global supply chains, environmental regulation and green innovation

Other Projects

Cross-cultural differences in the perception of corporate social responsibility and consumer social responsibility along global supply chains Experimental studies of moral responsibility in global supply chains
Modelling economic and social dimensions of global supply chains Global supply chains, environmental regulation and green innovation Further KCG Projects

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