MEDI-CAPS INSTITUTE OF TECHNOLOGY & MANAGEMENT, INDORE

CERTIFICATE This is to certify that Arpit Paruthi Krishnaditya Singh Vaibhav Kohli have completed their project, titled STUDY AND QUANTIFICATION OF BULLWHIP EFFECT IN SUPPLY CHAINS SYSTEMS
as per the syllabus and have submitted a satisfactory report on this project as a partial fulfillment towards the degree of

(0812ME081010) (0812ME081020) (0812ME081058)

Bachelor of Engineering in Mechanical Engineering from Rajiv Gandhi Proudyogiki Vishwavidyalaya, Bhopal

(Prof. Ram Janm Singh) Project Guide

(Prof. Jayesh Barve) Project Coordinators

(Prof. V.K. Choudhary) Project Guide

(Dr S.C. Sharma) Head of Department

ACKNOWLEDGEMENT

We are thankful to the university RGPV, Bhopal for having given us a chance to showcase our practical skills through this project.

We would also like to thank our project guide, Prof. Ram Janm Singh, without whose valuable guidance, our project would not have been completed.

We would also like to express gratitude to our project coordinators, Prof. K.K Gupta and Prof Jayesh Barve, for encouraging us and keeping a check on our progress.

We are thankful to the Head of Mechanical Engineering Department, Dr. S.C.Sharma, for encouraging us regularly, and for providing us each & every facility.

Lastly, we are also thankful to each & every person involved directly or indirectly in the project work.

Arpit Paruthi Krishnaditya Singh Vaibhav Kohli

CONTENTS

List of notations

Abstract

Chapter 1 - Supply Chain Management

Chapter 2 - The Bullwhip Effect

Chapter 2 - Forecasting Techniques

Conclusion

Future Enhancement

References

ABSTRACT
This study explored the simulation approach in quantifying the effect of bullwhip in supply chain, using various forecasting methods such as time series and Monte Carlo method.

Supply chain exists due to the fact that it is difficult for any company to provide all that is required from raw materials to final products and at the same time get the products to the end users. Successful supply chain management requires a change from managing individual functions to integrating activities into key supply chain process; hence, accurate information is of essence. One of the key factors that can adversely affect effective and efficient supply chain process is information distortion.

The data for milk was collected from Reliance Fresh and the data for shampoo was collected from a local store.

The analysis was performed on EXCEL. Empirical relations were used to quantify the bullwhip effect. The results reveal that adjusted exponential smoothing is the most efficient method for reducing Bullwhip effect.

Keywords: information distortion, supply chain, simulation, quantifying bullwhip effect

CHAPTER 1-

SUPPLY CHAIN MANAGEMENT

Chapter 1 1.0 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Supply chain management(SCM) is the term used to describe the management of the flow of materials, information, and funds across the entire supply chain, from suppliers to component producers to final assemblers to distribution (warehouses and retailers), and ultimately to the consumer. In fact, it often includes after-sales service and returns or recycling.

Supply chain management has generated much interest in recent years for a number of reasons. Many managers now realize that actions taken by one member of the chain can influence the profitability of all others in the chain. Firms are increasingly thinking in terms of competing as part of a supply chain against other supply chains, rather than as a single firm against other individual firms. Also, as firms successfully streamline their own operations, the next opportunity for improvement is through better coordination with their suppliers and customers. The costs of poor coordination can be extremely high. In the Italian pasta industry, consumer demand is quite steady throughout the year.

However, because of trade promotions, volume discounts, long lead times, full-truckload discounts, and end-of-quarter sales incentives the orders seen at the manufacturers are highly variable (Hammond(1994)). In fact, the variability increases in moving up the supply chain from consumer to grocery store to distribution center to central warehouse to factory, a phenomenon that is often called the bullwhip effect.

It seems that integration, long the dream of management gurus, has finally been sinking into the minds of western managers. Some would argue that managers have long been interested in integration, but the lack of information technology made it impossible to implement amore systems-oriented approach. With the recent explosion of inexpensive information technology, it seems only natural that business would become more supply chain focused. However, while technology is clearly an enabler of integration, it alone cannot explain the radical organizational changes in both individual firms and whole industries. Changes in both technology and management theory set the stage for integrated supply chain management. 6

One reason for the change in management theory is the power shift from manufacturers to retailers. Wal-Mart has forced many manufacturers to improve their management of inventories, and even to manage inventories of their products at Wal-Mart. While integration, information technology and retail power may be the key catalysts in the surge of interest surrounding supply chains, eBusiness is fueling even stronger excitement. eBusiness facilitates the virtual supply chain, and as companies manage these virtual networks, the importance of integration is magnified. Firms likeAmazon.com are superb at managing the flow of information and funds, via the Internet and electronic funds transfer. Now, the challenge is to efficiently manage the flow of products. Some would argue that the language and metaphors are wrong. Chains evoke images of linear, unchanging, and powerless. Supply feels pushy and reeks of mass production rather than mass customization. Better names, like demand networks or customer driven webs have been proposed by many a potential book author hoping to invent a new trend.

1.1 EFFECTIVE SUPPLY CHAIN MANAGEMENT

The complexities of getting material ordered, manufactured and delivered overload most supply chain management (SCM) systems. The fact is, most systems are just not up to handling all the variables up and down the supply chain. For years, it was thought that it was enough for manufacturers to have an MRP or ERP system that could help answer fundamental questions such as: What are we going to make? What do we need to make the products? What do we have now? What materials do we need, and when? What resources/ capacity do we need and when? Manufacturers need to know a lot more today to have a truly effective supply chain. There are a number of fundamental weaknesses in the old system logic.

Many planning and scheduling systems in use today assume that lead times are fixed, queues do not change, queues must exist, capacity is infinite and backward scheduling logic will produce valid load profiles and good shop floor schedules. These assumptions are totally illogical, and following them causes many schedule compliance problems. An effective fix is first to streamline operations and then to apply predictive, preventive forms of advanced planning and scheduling. SCM involves two flows. Information flow signals the need to start the flow of material. In a supply chain, the fast flow of high-quality information and material is inextricably linked and of paramount importance to SCM success.

Untimely or low-quality information virtually guarantees poor performance. Manufacturers need to develop flexible supply chain processes that can adapt to the needs of various customer segments. They must also develop supply chain strategy, processes and supporting systems that conform to current and future requirements.

Generally, an effective SCM approach must focus on: Flexible supply and production processes that can very quickly respond to changing customer demand A short-cycle, demand-driven order-to-delivery process Accurate, relevant information that is available on demand throughout the supply chain. 9

Throughout the supply chain, there are some absolutely critical and predictive questions your system should accurately and quickly answer: When will specific orders really ship? Which orders will be late? Why will these orders be late? What are the specific problems that are delaying the schedule? What are the future schedule problems and when will they occur? What is the best schedule that can be executed now?

If management can answer predictive questions, its decisions will greatly improve. Preventive actions can offset what were once unforeseen problems. The supply chain will be managed more effectively and improve chances of gaining a competitive advantage. In the early 1980s, with the introduction of just-in-time production to the United States, many were convinced that pull signals (kanbans) and instant material deliveries would eradicate the need for MRP. The announcement of MRPs death was premature, except for firms with simple products and absolute control of supplier deliveries. Those with more complex products requiring more supply sources for more parts discovered that longer lead times and demand and supply variability were still issues to be dealt with. Simply put, the more diverse your product line and the more complex your products, more valuable the MRP is for planning raw material needs.

This is not to say pull logic is not useful for raw material planning, because it is. Yet for most, it is not necessary (or desirable) to put every part number from every supplier on a pull system. Scheduling production with MRP push logic, however, is like pushing a rope. You dont know what direction it will go. Pull systems will eventually dominate the entire supply chainto customers and from suppliers, as well as internal material movement. Yet, MRP can, and must, coexist with pull scheduling. Cycle time compression should be the first objective in the order-to-delivery process. Midrange manufacturers often have limited clout with suppliers, making across-the-board mandatory lead-time reductions unlikely. While there are many ways to workout mutually beneficial and necessary improvements with suppliers, the real enemy is time. The alternative is to work selectively on supply improvements while using a rationalized inventory deployment strategy to support the first 10

objectivereducing order-to-delivery cycle time. Good collaborative forecasting, good planning and realistic replenishment scheduling are essential to effective SCM. Further improvements come from redesigning supplier links to make them firm, fast and flexible for the benefit of the entire supply chain.

1.2 SCM FLOW DIAGRAM

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1.3ROLE OF INFORMATION
Information could be overlooked as a major supply chain driver because it does not have a physical presence. Information, however, deeply affects every part of supply chain. Its impact is easy to under estimate as information affects a supply chain in many different ways. Consider the following: 1) Information serves as the connection between the supply chains various stages, allowing them to coordinate and bring out many of the benefits of maximizing total supply chain profitability.

2) Information is also crucial to the daily operation of each stage in supply chain. For instance, a production scheduling system uses information on Demand to create a schedule that allows a factory to produce the right products in an efficient manner .A warehouse management system uses information to create a visibility of the warehouses inventory. The company can then use this information to determine whether new orders can be filled.

Further we can classify information as follows:

Centralized information: One of the most frequent suggestions for reducing the bullwhip effect is to centralized demand information within a supply chain that is to provide each stage of supply chain with complete information on the actual customer demand. if the demand information is centralized, each stage of supply chain can use the actual customer demand data to create more accurate forecasts, rather than relying on the orders received from the previous which can vary significantly more than the actual customer demand.

Decentralized information-: second type of supply chain that we consider is the decentralize supply chain. In this case the retailer does not make its forecast mean demand available to the remainder of supply chain. Instead, the wholesaler must estimate the mean demand based on the orders received from the retailer.

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Information is a driver whose importance has grown as companies have used it to become both more efficient and more responsive. Another key decision involves what information is most valuable in reducing cost and improving responsiveness within a supply chain. This decision will vary depending on the supply chain structure and the market segments served. Some companies target Customers who require customized product that carry a premium price tag. This company might find that investment in information allow them to respond more quickly to their customers.

1.4 SUPPLY CHAIN UNCERTAINTY AND INVENTORY

One of the companys main objectives in managing its supply chain is to synchronize the upstream flow of incoming materials, parts, subassemblies, and services with production and distribution downstream so that it can respond to uncertainty in customer demand without creating costly excess inventory. Examples of factors that contribute to uncertainty, and hence variability, in the supply chain are inaccurate demand forecasting, long variable lead times for orders, late deliveries, incomplete shipments, product changes, batch ordering, price fluctuations and discounts, and inflated orders. If deliveries from suppliers are late or incomplete, they slow down the flow of goods and services through the supply chain, ultimately resulting in poor quality customer service. Companies cope with this uncertainty and try to avoid delays with their own form of insurance inventory.

Supply chain members carry buffer inventory at various stages of the supply chain to minimize the negative effects of uncertainty and to keep goods and services flowing smoothly from suppliers to customers. For examples, if a part order arrives late from a supplier, the producer is able to continue production and maintain its delivery schedule to its customers by using parts it has stored in inventory for just such an occurrence.

Companies also accumulate inventory because they may order in large bathes in order to keep down order and transportation costs or to receive a discount or special price from a supplier. However, inventory is very costly. Products sitting on a shelf or in a warehouse are just like money sitting there not being used when it could be used for something else. It is estimated that the cost of carrying a retail product in inventory for one year is over 25% of

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what the item costs. Inventory carrying costs is over $300 billion per year in the United States. As such, suppliers and customers would like to minimize or eliminate it.

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CHAPTER 2

THE BULLWHIP EFFECT

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Chapter 2 2.0 INTRODUCTION

The Bullwhip Effect (or Whiplash Effect) is an observed phenomenon in forecast-driven distribution channels. Since the oscillating demand magnification upstream a supply chain reminds someone of a cracking whip it became famous as the Bullwhip Effect.

The bullwhip effect is the magnification of demand fluctuations, not the magnification of demand. The bullwhip effect is evident in a supply chain when demand increases and decreases. The effect is that these increases and decreases are exaggerated up the supply chain.

The essence of the bullwhip effect is that orders to suppliers tend to have larger variance than sales to the buyer. The more chains in the supply chain the more complex this issue becomes. This distortion of demand is amplified the farther demand is passed up the supply chain. Proctor & Gamble coined the term bullwhip effect by studying the demand fluctuations for Pampers (disposable diapers). This is a classic example of a product with very little consumer demand fluctuation. P&G observed that distributor orders to the factory varied far more than the preceding retail demand. P & G orders to their material suppliers fluctuated even more.

Babies use diapers at a very predictable rate, and retail sales resemble this fact. Information is readily available concerning the number of babies in all stages of diaper wearing. Even so P&G observed that this product with uniform demand created a wave of changes up the supply chain due to very minor changes in demand.

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2.1 LITERARTURE REVIEW

1) Boute et al studied that: A major cause of supply chain deficiencies is the bullwhip problem, which refers to the tendency of replenishment orders to increase in variability as they move up a supply chain. Conventional bullwhip reduction is only one side of the coin, however. In developing a replenishment rule one has to consider the impact on the inventory variance as well.

2) According to Huang et al. research: The bullwhip effect refers to the phenomenon of the amplification of demand variability from a downstream site to an upstream site in the supply chain.

3) According to Sterman et al study: The Bullwhip effect stems from a non-optimal solution applied by members of the supply chain who see their strategies as a sum of individual strategies rather than a unit.

4) Forrester observed that: A small change in the rate of sale at the retail level could result in a much larger change in demand for the manufacturer. The magnitude of the distortion in the demand information is amplified as one travels up through the supply chain.

5) Seokcheon Lee et al found that: As supply chains become bigger and dynamically structured involving multiple organizations with different interests, it is impossible for a single organization to control a whole supply chain. So, decentralization of decision rights is an inevitable facet of managing modern supply chains.

6) J. NIENHAUS et al found that: The aspects of human behaviour need to be recognised as further amplifying the bullwhip effect. Humans act as obstacles for information flow in supply chains in practice and by that increase the lead time of information and as a consequence the bullwhip effect.

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7). Riddalls and Bennett: Disruptions can be costly in supply chain systems and can cause variety of problems such as long lead-times, stock-outs, inability to meet customer demand and increases in costs and finds that disruptions in an supply chain can lead to unexpected costs when shipping leadtimes are long.

8).Goldbergs et al: Genetic algorithms do not carry out examinations sequentially but search in parallel mode using a multi individual population, where each individual is being examined at the same time.

2.2 CAUSES
Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called safety stock. Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop, thereby not reducing inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer). The four main causes of the bullwhip effect have been identified, which are

Demand Forecast Updating Order Batching Rationing and Shortage Gaming Price Variations

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2.2.1 Demand forecast updating

Forecasting data used are normally based on the previous orders received by the company from its customers. The main reason for this problem is that the data are usually based on forecast orders and not actual customer demand. As most companies are untrusting, this leads to companies not wanting to share information about demand, which leads to information distortion throughout the supply chain. Various methods of forecasting such as exponential smoothing or moving average forecasting have been employed by many companies to find the truest demand. Unfortunately, any type of forecasting can cause the bullwhip effect. However, it is possible to reduce the bullwhip effect significantly by using centralized information and allowing only one member of the supply chain to place orders on behalf of all other members via Vendor Managed Inventory (VMI) and Continuous Replenishment Programs (CRP).

2.2.2 Order batching

Order batching has been identified as another major cause of the bullwhip effect. Order batching refers to a company ordering a large quantity of a product in one week and not ordering any for many weeks. The main reason for a company ordering in batches is that it may prove to be less costly because of transportation costs or the company will receive a discount if a large quantity is ordered in one period. Although this may reduce the cost for the company, the other members of the supply chain are likely to suffer. The impact of batch ordering is simple to understand. Where the retailer uses batch ordering, the manufacturer will observe a very large order, followed by several periods of no orders and then another large order, etc. The manufacturer forecast demand will be greatly distorted as it will base future demand forecasts on orders rather than actual sales. One method of reducing the bullwhip effect is by ordering less product and more frequently, which will allow the supplier to determine the true demand.

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2.2.3 Rationing and shortage gaming

When a product demand exceeds supply, a manufacturer often rations its product to customers. Rationing schemes that allocate limited production in proportion to the orders placed by retailers lead to a magnification of the bullwhip effect. When this problem arises, many customers will exaggerate their orders to ensure that they receive a sufficient amount of the required product. This can cause major problems, as when demand is not as high, the orders will stop, and cancellations will begin to arise. This leaves the manufacturer with excess inventory and no customer orders. This also makes it difficult for the manufacturer to believe that there is an increase in demand, whereas customer demand is actually unchanged.

2.2.4 Price variations/sales promotions

If the price of products changes dramatically, customers will purchase the product when it is cheapest. This may cause customers to buy in bulk, which also adds to the order-matching problem. Manufacturers and distributors occasionally have special promotions like price discounts, quantity discounts, coupons, rebates, etc. All these price promotions result in price fluctuations, and the customers ordering patterns will not reflect the true demand pattern.

One method of avoiding price fluctuations is by stabilizing prices. If companies can reduce the price of their product to a single reduced price, the fluctuations in demand will not be as aggressive. Sales promotion is another major contributor to this problem. If the consumer purchases more of the product because of the promotion, this will cause a large spike to appear in demand and further upstream the supply chain. Despite the lowered price for consumers, this will have the opposite effect on the supply chain causing forecast information to be distorted and in effect causing inefficiencies, i.e. excessive inventory, quality problems, higher raw-material costs, overtime expenses, shipping costs, poor customer service, and missed production schedule.

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Retailers use promotions to meet monthly quotas for products, which can result in the overuse of promotions. The result is an addiction to incentives that turn simple predictable demand patterns into a chaotic series of spikes that only add to cost (Fisher 1997). No matter where a promotion occurs, whether it is a sales promotion to consumer to buy a specific product or a discount for retailers from a manufacturer, it is more prudent to provide lower prices all year round and disregard promotional strategies altogether (Fisher 1997). In an ideal world, companies would use everyday low pricing. Unfortunately, this is not the case, as companies compete with other competitors by using price promotions to increase profits and improve market share.

The causes can further be divided into behavioral and operational causes: Behavioral causes
misuse of base-stock policies misapplication of trinomial theorem misperceptions of feedback and time delays panic ordering reactions after unmet demand perceived risk of other players bounded rationality

Operational causes
Dependent demand processing Forecast Errors Adjustment of inventory control parameters with each demand observation Lead-time Variability (forecast error during replenishment lead time) Lot-sizing/order synchronization Consolidation of demands Transaction motive Quantity discount Trade promotion and forward buying Anticipation of shortages Allocation rule of suppliers Shortage gaming

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Lean and JIT style management of inventories and a chase production strategy

2.3 CONSEQUENCES

In addition to greater safety stocks, the described effect can lead to either inefficient production or excessive inventory as the producer needs to fulfill the demand of its predecessor in the supply chain. This also leads to a low utilization of the distribution channel.

In spite of having safety stocks there is still the hazard of stock-outs which result in poor customer service. Furthermore, the Bullwhip effect leads to a row of financial costs.

Next to the (financially) hard measurable consequences of poor customer services and the damage of public image and loyalty an organization has to cope with the ramifications of failed fulfillment which can lead to contract penalties. Moreover the hiring and dismissals of employees to manage the demand variability induce further costs due to training and possible pay-offs.

2.4 COUNTER MEASURES

Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of each period. This is consistent with findings of supply chain experts who have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains, and careful management of the effect is an important goal for Supply Chain Managers. Therefore it is necessary to extend the visibility of customer demand as far as possible. One way to achieve this is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanab. This model has been most successfully implemented in Wal-Marts distribution system. Individual Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate headquarters several times a day. This demand information is used to queue shipments from the WalMart distribution centre to the store and from the supplier to the Wal-Mart distribution 23

centre. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain. Better information leads to better inventory positioning and lower costs throughout the supply chain. Barriers to the implementation of a demand-driven supply chain include the necessary investment in information technology and the creation of a corporate culture of flexibility and focus on customer demand. Another prerequisite is that all members of a supply chain recognize that they can gain more if they act as a whole which requires trustful collaboration and information sharing. Methods intended to reduce uncertainty, variability, and lead time: Vendor Managed Inventory (VMI) Just In Time replenishment (JIT) Strategic partnership Information sharing smooth the flow of products coordinate with retailers to spread deliveries evenly reduce minimum batch sizes smaller and more frequent replenishments eliminate pathological incentives every day low price policy restrict returns and order cancellations order allocation based on past sales instead of current size in case of shortage

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CHAPTER 3

FORECASTING TECHNIQUES

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Chapter 3 3.0 FORECASTING

Forecasting is the process of making statements about events whose actual outcomes (typically) have not yet been observed. A commonplace example might be estimation for some variable of interest at some specified future date. Prediction is a similar, but more general term. Both might refer to formal statistical methods employing time series, crosssectional or longitudinal data, or alternatively to less formal judgmental methods. Usage can differ between areas of application: for example in hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur over a long period. Risk and uncertainty are central to forecasting and prediction; it is generally considered good practice to indicate the degree of uncertainty attaching to forecasts. The process of climate change and increasing energy prices has led to the usage of Again Forecasting of buildings. The method uses Forecasting to reduce the energy needed to heat the building, thus reducing the emission of greenhouse gases. Forecasting is used in the practice of Customer Demand Planning in everyday business forecasting for manufacturing companies. The discipline of demand planning, also sometimes referred to as supply chain forecasting, embraces both statistical forecasting and a consensus process. An important, albeit often ignored aspect of forecasting, is the relationship it holds with planning. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like. There is no single right forecasting method to use. Selection of a method should be based on your objectives and your conditions.

Forecasting can be done in the following ways Time series methods Regressive methods Qualitative methods

3.2 TIME SERIES METHODS

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These are statistical techniques that make use of historical data accumulated over a period of time. Time series methods assume that what has occurred in the past will continue to occur in the future. As the name suggests, these methods relate the forecasts to only factor that is time. These methods assume that identifiable historical patterns or trends for demands over time will repeat themselves. Almost 70% of the firms use time series models. Time series methods use historical data as the basis of estimating future outcomes.

Moving average

Weighted moving average

Exponential smoothing

Autoregressive moving average (ARMA)

Autoregressive integrated moving average (ARIMA)

Extrapolation

Linear prediction

Trend estimation

Growth curve

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3.2.1 SIMPLE MOVING AVERAGE

In financial applications a simple moving average (SMA) is the un-weighted mean of the previous n data points. However, in science and engineering the mean is normally taken from an equal number of data either side of a central value. This ensures that variations in the mean are aligned with the variations in the data rather than being shifted in time. An example of a simple un-weighted running mean for a 10-day sample of closing price is the mean of the previous 10 days' closing prices. If those prices are then the formula is

The period selected depends on the type of movement of interest, such as short, intermediate, or long term. In financial terms moving average levels can be interpreted as resistance in a rising market, or support in a falling market. If the data used is not centred around the mean, a simple moving average lags behind the latest data point by half the sample width. A SMA can also be disproportionately influenced by old data points dropping out or new data coming in. One characteristic of the SMA is that if the data have a periodic fluctuation, then applying an SMA of that period will eliminate that variation (the average always containing one complete cycle). But a perfectly regular cycle is rarely encountered. For a number of applications it is advantageous to avoid the shifting induced by using only 'past' data. Hence a central moving average can be computed, using data equally spaced either side of the point in the series where the mean is calculated. This requires using an odd number of data points in the sample window.

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3.2.2 EXPONENTIAL SMOOTHING

Exponential smoothing is a technique that can be applied to time series data, either to produce smoothed data for presentation, or to make forecasts. The time series data themselves are a sequence of observations. The observed phenomenon may be an essentially random process, or it may be an orderly, but noisy, process. Whereas in the simple moving average the past observations are weighted equally, exponential smoothing assigns exponentially decreasing weights over time. Exponential smoothing is commonly applied to financial market and economic data, but it can be used with any discrete set of repeated measurements. The raw data sequence is often represented by {xt}, and the output of the exponential smoothing algorithm is commonly written as {st}, which may be regarded as a best estimate of what the next value of x will be. When the sequence of observations begins at time t = 0, the simplest form of exponential smoothing is given by the formulas.

where is the smoothing factor, and 0 < < 1.

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3.2.3 ADJUSTED EXPONENTIAL SMOOTHING

Trend estimation is a statistical technique to aid interpretation of data. When a series of measurements of a process are treated as a time series, trend estimation can be used to make and justify statements about tendencies in the data. By using trend estimation it is possible to construct a model which is independent of anything known about the nature of the process of an incompletely understood system (for example, physical, economic, or other system). This model can then be used to describe the behaviour of the observed data. In particular, it may be useful to determine if measurements exhibit an increasing or decreasing trend which is statistically distinguished from random behaviour. Some examples are: determining the trend of the daily average temperatures at a given location, from winter to summer; or the trend in a global temperature series over the last 100 years. In the latter case, issues of homogeneity are important (for example, about whether the series is equally reliable throughout its length).

F t+1 = Dt + (1- )Ft T t+1 = (F t+1 -Ft) + (1- )Tt

Tt=1 = trend factor for the next period. Tt = trend factor for the current period = smoothing constant for the trend adjustment factor.

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3.2.4 MONTE CARLO SIMULATION

Risk analysis is part of every decision we make. We are constantly faced with uncertainty, ambiguity, and variability. And even though we have unprecedented access to information, we cant accurately predict the future. Monte Carlo simulation (also known as the Monte Carlo Method) lets you see all the possible outcomes of your decisions and assess the impact of risk, allowing for better decision making under uncertainty. What is Monte Carlo simulation?

Monte Carlo simulation is a computerized mathematical technique that allows people to account for risk in quantitative analysis and decision making. The technique is used by professionals in such widely disparate fields as finance, project management, energy, manufacturing, engineering, research and development, insurance, oil & gas, transportation, and the environment. Monte Carlo simulation furnishes the decision-maker with a range of possible outcomes and the probabilities they will occur for any choice of action.. It shows the extreme possibilitiesthe outcomes of going for broke and for the most conservative decision along with all possible consequences for middle-of-the-road decisions. The technique was first used by scientists working on the atom bomb; it was named for Monte Carlo, the Monaco resort town renowned for its casinos. Since its introduction in World War II, Monte Carlo simulation has been used to model a variety of physical and conceptual systems. How Monte Carlo simulation works:

Monte Carlo simulation performs risk analysis by building models of possible results by substituting a range of valuesa probability distributionfor any factor that has inherent uncertainty. It then calculates results over and over, each time using a different set of random values from the probability functions. Depending upon the number of uncertainties 31

and the ranges specified for them, a Monte Carlo simulation could involve thousands or tens of thousands of recalculations before it is complete. Monte Carlo simulation produces distributions of possible outcome values. By using probability distributions, variables can have different probabilities of different outcomes occurring. Probability distributions are a much more realistic way of describing uncertainty in variables of a risk analysis

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CONCLUSION
The study was aimed at quantifying the Bullwhip effect in manufacturing firms. Information distortion in supply chain management has been found to be a major contributor to the bullwhip effect in the manufacturing sector. However, since life itself is dynamic and the environment in which manufacturing organizations operates changes constantly, order and demand for products cannot be static. Moreover, the complexity facing several manufacturers today requires that manufacturing organizations should be proactive and dynamic. Hence the great need for the use of appropriate forecasting tools to map out strategies of operations for the future, and the simulation techniques, based on knowledge of past experience has been found to be a vital tool.

In our project, we used Moving Average, Exponential Smoothing, Adjusted Exponential Smoothing, and Monte Carlo Simulation to quantify the Bullwhip Effect. It is safe to conclude that various forecasting techniques help in reducing the value of Bullwhip Effect, which is the ratio of variance of order to the variance of demand.

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FUTURE ENHANCEMENTS

1. To study the information distortion in an industry and quantify the Bullwhip Effect in its Supply Chain.

2. To study the researches made on Supply chain Management and The Bullwhip Effect.

3. To study and apply a mathematical model to quantify THE Bullwhip Effect.

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REFERENCES
1. 2. 3. 4. 5. Wikipedia.com Operations Management along the Supply Chain Russell and Taylor Operations Management P.B. Mahapatra Youtube.com Various case studies and papers on Bullwhip

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