Value of Information

Question 1

Pampers reasons for increasing demand variance

Answer 1

1. Infrequent ordering
2. Changes in prices
3. Lack of information upstream

Question 2

Bullwhip effect

Answer 2

Order variability keeps amplifying as we move up the supply chain

Question 3

Four causes for the bullwhip effect

Answer 3

1. Forecasting based on order and not customer demand
2. Ordering in large lots
3. Price fluctuations (forward buying)
4. False orders
   Long lead times magnify the effect

Question 4

Demand forecasting quantitative methods

Answer 4

1. Moving averages
2. Exponential smoothing (alpha given)
   Sharing information vs no sharing

Question 5

Both forecasts same variance of forecast error when: (formula)

Answer 5

alpha = 2 / (p + 1)

Question 6

How to counteract bullwhip effect

Answer 6

1. Avoid independent demand forecasting by different SC actors
2. Break order batches
3. Stabilise prices
4. Eliminate false orders
   Cannot be eliminated completely!

Question 7

Variance increases, centralised and decentralised:

Answer 7

Additively in centralised

Multiplicatively with decentralised case

Question 8

Break order batches (reduce bullwhip effect)

Answer 8

Reduce replenishment costs
Economies of scale in transport
Third party logistics companies
- Reduction of fixed order cost by factor Ksquared results in reduction order size of only factor K