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’Herd’ Behavior and the BullWhip Effect: Information Access, or Risks and Rewards?

’Herd’ Behavior and the BullWhip Effect: Information Access, or Risks and Rewards?
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Author(s): Patrick I. Jeffers (Iowa State University, USA), Rhoda Joseph (Pennsylvania State University, Harrisburg, USA) and Francis A. Mendez (Texas State University, USA)
Copyright: 2006
Pages: 3
Source title: Emerging Trends and Challenges in Information Technology Management
Source Editor(s): Mehdi Khosrow-Pour, D.B.A. (Information Resources Management Association, USA)
DOI: 10.4018/978-1-59904-019-6.ch185
ISBN13: 9781616921286
EISBN13: 9781466665361

Abstract

“Information cascades” occur in sequential decision-making process, where the second person who ignores their own information in favor of going along with the decision of the first person could induce others to follow, sometimes even when those earlier decision-makers are misinformed. Suppliers and retailers have observed in recent years that minor variations in customer demand may cause widespread gyrations – the bullwhip effect - in inventory levels and back-orders, which increase in magnitude as the (misinformation is transmitted across the supply chain. Traditionally, the problem has been defined as information-based and has been addressed by providing increased visibility across the supply chain, at best a partial remedy. Given that for most firms the sales and marketing department is the nexus of the organization, one possible explanation for the bullwhip effect could lie in the risk-sharing and payoff policies of supply chain players. This paper presents the theoretical basis for an experiment that tests the effect of the prevailing reward system on the frequency information cascades. Proof of the main hypothesis would imply that more equitable sharing of risks and payoff in supply chain alliances can actually reduce the impact of the bullwhip effect, a new perspective on the phenomenon.

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