Risk mapping to the Bullwhip Effect: VaR as a risk measure for supply chain

Introduction
One important mechanism for coordination in a supply chain is the information flows among members of the supply chain. These information flows have a direct impact on the production scheduling, inventory control and delivery plans of individual members in the supply chain. However, the distortion demand information, the retailer¡¦s orders do not coincide with the actual retail sales, tend to have larger variance orders to the supplier than sales to the buyer. This distortion of the demand in upstream activities is known as ¡§bullwhip effect¡¨(Lee et al. 1997). Viewed more fundamentally, bullwhip refers to the amplification of end-customer order signals, whereby upstream replenishment demand and physical shipments exceed the original order quantity. The bullwhip effect, as defined by Lee et al.(1997), is a phenomenon whereby:
Information transferred in the form of orders tens to be distorted and can misguide upstream members in their inventory and production d...