Contingency Between Elasticityof Demand and Bullwhip Effectin Logistics Chains

Abstract

This paper discusses how the elasticity of final demand influences the bullwhip amplification when sudden economic changes appear along the entire multi-level supply chain. Increased variability of prices does not affect added value substantially in a supply chain where the price elasticity of demand is small(around 0.1) but with an elasticity of 10 or more, high price variances may result in significant losses. A traditional model of dynamic supply chain structure is used for our study, based on the seminal work of Forrester. A simulation platform for supplychain management with stochastic demand has been developed to study such a phenomenon. Vensim simulation software was used for developing the appropriate supply chain dynamic models. The aim of our study is to gain a deeper insight into theprocesses in a logistic chain, at different elasticities of price demand.