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SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT

SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT. J. PEREIRA, F. PAREDES Faculty of Engineering , Universidad Diego Portales, Santiago de Chile C . LAVIN, L.S. CONTRERAS-HUERTA, C. FUENTES,

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SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT

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  1. SIMULATION AND EXPERIMENTAL ANALYSIS OF PULL-TYPE ORDERING METHODS: THE BULLWHIP EFFECT J. PEREIRA, F. PAREDESFacultyof Engineering, Universidad Diego Portales, Santiago de Chile C. LAVIN, L.S. CONTRERAS-HUERTA, C. FUENTES, Faculty of Psychology, Universidad Diego Portales, Santiago de Chile

  2. Motivation BeerDistributionGame (SupplyChainStructure): L factory wholesaler retailer

  3. Motivation BehaviouralExperiment Figure 1. Amplification (bullwhipeffect) of orders and inventorylevels

  4. Motivation • [Lee et al. 2000;Takahashi and Myreshka, 2004; Warburton 2004; Pereira et al., 2009] • MAIN REASONS OF BULLWHIP-EFFECT: • Demandprocess • Forecastingmethods • Orderingbehaviour • Lead time • Price variations

  5. Motivation • [Sterman 2006; Wu and Katok, 2006; Croson et al., 2013] • BEHAVIOURAL REASONS: • Cognitiveaspects • Decisionmakerheuristics and biases • Properties of orderingmethods • Perception of uncertainty

  6. Agenda • SCM model • Bullwhip-effect • Judgmentunderuncertainty • Experiments • Conclusions and FutureWork

  7. Supplychainmanagementmodel

  8. OrderingMethods

  9. OrderEquation Push Expectedinventorylevel Expectedwork-in-processlevel Pull

  10. Bullwhipeffect Theoretical ! Figure 3. Amplification at stages 1, 2, 3 (L=2)

  11. Bullwhipeffect Theoretical !

  12. ResearchQuestions • Behaviouralreasons of bullwhipeffect? • Heuristics? • Biases? • Methoddependent?

  13. Judgment under uncertainty(Kahneman & Tversky, 1974) • Heuristic mind processing • Adaptation behaviour • Simple probabilistic judgement • Systematic bias

  14. Heuristics • REPRESENTATIVENESS • Judgement in terms of similarity HEURISTICS • AVAILABILITY • Judgment in terms of simplicity of evocation • ADJUSTMENT AND ANCHORING • judgment in terms of anevocated anchor

  15. Somebiases • REPRESENTATIVENESS • Insensivitytoprior probabilityof outcomes • Aversiontolosses • Regressiontowardthe mean • AVAILABILITY • Retrievability of instances • Imaginability • Illusorycorrelation HEURISTICS • ADJUSTMENT AND ANCHORING • Insufficientadjustment • Evaluation of conjunctive and disjunctiveevents

  16. Experiments • SC model • Uncertaindemandprocess • Experiment #1: no instruction • Experiment#2: pullinstruction

  17. Experiment #1 Figure 4. Experimentsetting • Veryhighinitialinventorylevel (N=1000) • Lowvariabilitydemandprocess (μ=100; σ=10%) • Participants are notinstructedoninventorymanagement

  18. Results #1 Figure 5. Amplification at stages 1, 2, 3 (L=2); the case of 4 groups

  19. Results #1 Table2. Amplification (no instructiontoparticipants)

  20. Questions Push feedback Pull • Do peopleconsiderfeedback? • Disregardingfeedback, induce bias? • Whatbiases?

  21. Orderpredictability #1 Table3. Multipleregressionresults (D: demand, I: inventory, OP: work-in-process)

  22. Mainresults #1 • Peopledisregardfeedback • They use heuristicsand performverybad • Bias: Substitution of attributes • Question: • Howcouldpeopleimprove performance?

  23. Experiment # 2 • Samesupplychainsetting • Very-highinitialinventorylevel (N=2000) • Medium-variabilitydemandprocess (μ=200; σ=50%) • Participants are instructedonpull: • Order = consumption • Keepinventoryunder control

  24. Results #2-1

  25. Results #2-2

  26. Results #2-3

  27. Results #2-4

  28. Results #2-5

  29. Results #2-6

  30. Conclusions • Sensitivitytoinventorycosts? • Cognitive variables in place • heuristics and biases • Achievement of thetask? • groupswithverybad performance • Somegroups are verygood • Facinguncertainty? • substitutionof attributebias • Simple dimensional approach (1 or 2) • Disregardingfeedback

  31. Conclusions • Facingtheinventorydynamics? • Overreactiontopossiblenegativescenario • Anchoring and adjustmentheuristic • Futurework: • Levels of perceiveduncertainty • Management people

  32. REFERENCES

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