Centralized - Decentralized Demand Management And The Bullwhip Effect

Abstract

Information distortion tends to inflate from downstream to upstream, and results in demand planning errors and this is followed by inaccurate forecasting. This situation is referred to as the bullwhip effect phenomenon. Demand management is also determined based on either a centralized or decentralized distribution strategy. Both strategies will influence the accuracy of demand planning and its effect on the bullwhip phenomenon. Unfortunately, research investigating the relationship between centralization and decentralization strategies for demand and the bullwhip effect is still limited. To answer this shortcoming, this paper has two scenarios for its analysis. First, forecasting is done to determine the accuracy of demand planning, indicated by the smallest forecast error value. Based on the results of the analysis, it is known that single exponential smoothing with alpha 0.5 is the best forecasting method. The second step is to measure the bullwhip effect; the results show that the coefficient is less than one. This coefficient indicated that the company underperformed in the fulfillment of its customers’ needs. Theoretically, this paper extends the literature on demand management in the supply chain by considering centralized and decentralized strategies.