Analyzing the Bullwhip Effect of Installation-Stock and Echelon-Stock Policies with Linear Control Theory

We analyze the effect of installation-stock and echelon-stock policies on order amplification in a serial two-echelon supply chain. As orders are passed through a supply chain, order oscillations and inventory oscillations are typically amplified at each echelon. This behavior is referred to as the bullwhip effect. To analyze how different inventory policies affect order and inventory oscillations we apply linear control theory. We show that the echelon-stock policy outperforms the installation-stock policy with respect to both order and inventory oscillation