Ration Gaming and the Bullwhip Effect
Thu, Jun 04, 2020
Robert L. Bray, Yuliang Yao, Yongrui Duan, Jiazhen Huo
Operations Research 2019, Vol. 67, No. 2
Recommend reason
This paper models a single-supplier, 73-store supply chain as a dynamic discrete choice problem. It estimates the model with transaction-level data, spanning 3,251 products and 1,370 days, and find two interrelated phenomena: the bullwhip effect and ration gaming. To establish the bullwhip effect, the authors show that shipments from suppliers are more variable than sales to customers. To establish ration gaming, they show that upstream scarcity triggers inventory runs, with stores simultaneously scrambling to amass private stocks in anticipation of impending shortages. These inventory runs increase the bullwhip measures by between 6% and 19%, which corroborates the long-standing hypothesis that ration gaming causes the bullwhip effect.
About the author
Robert L. Bray,Department of Operations Management, Kellogg School of Management, Northwestern University
Yuliang Yao,Department of Management, College of Business and Economics, Lehigh University
Yongrui Duan,Department of Management Science and Engineering, School of Economics and Management, Tongji University
Jiazhen Huo,Department of Management Science and Engineering, School of Economics and Management, Tongji University
Keywords
bullwhip effect; ration gaming; (s, S) inventory policies; dynamic discrete choice; empirical supply chain management;structural estimation
Brief introduction
Demand fluctuations amplify up a supply chain like the crack of a whip, which is called the bullwhip effect, and it is attributed to (i) demand signal processing, (ii) order batching, (iii) cost shock fluctuations, and (iv) ration gaming. Ration gaming is the only one of these four bullwhip drivers without empirical evidence. Empiricists have established the amplification properties of demand signal processing, order batching and cost shock fluctuations. However, no empirical study has shown that ration gaming increases supply chain variability. In fact, no empirical study has shown that ration gaming even exists.
This paper presents the first hard evidence of ration gaming. The phenomenon manifests as inventory runs, the supply chain analog of bank runs. The context is a Chinese grocery supply chain that spans one upstream distribution center (DC) and 73 downstream stores. If the stores were self-sacrificing, they would curtail their orders when the DC’s inventory runs low, scrimping for those in need. However, they are self-serving, and therefore, they accelerate their orders, stockpiling inventory to hedge against a potential upstream stock out. The authors estimate that these inventory runs account for about one-tenth of the bullwhip effect.
Through comprehensive analysis, this paper draws seven conclusions: