Exploring the relationship between inventory level and bullwhip effect in the supply chain

Lin Li 

School of Management, HeFei University of Technology, Anhui PR China

Anhui finance & trade vocational college, Anhui PR China

This paper intends to work out an expected inventory level formula for the retailer in the two-stage supply chain. It aims at disclosing the quantitative relationship between bullwhip effect and expected inventory level and does analysis of simulation experiment. The model supposes the market demand faced by the retailer follows the autoregressive process AR(1) and that the retailer makes anticipation of the market demand during the replenishment lead time by mean square error method. Moreover, if the interference factor follows normal distribution with mean 0 and variance σ2, market demand in every period, demand estimation during the replenishment lead time and the order quantity made by the retailer are all proved to follow normal distribution.