The Impacts of Supplier-Base Concentration on Bullwhip Effect: Evidence from Chinese Manufacturing Firms

Abstract

This paper empirically tests the influence of supplier-base concentration on the size of the bullwhip effect of enterprises. The study quantifies bullwhip effect of the enterprise by the ratio of fluctuations in production and the fluctuations in demand in each of the four quarters of each year. The study found that about half of the listed manufacturers in China have a bullwhip effect, and the size of the bullwhip effect of the enterprise is very heterogeneous. Empirical analysis found that after controlling the quarterly ratio of demand, the persistence of demand shock, the number of days of inventory holding, the gross profit margin, the size of the enterprise, and the lead time, the concentration of suppliers was significantly negatively correlated with the size of the bullwhip effect. This shows that the more concentrated the supplier of the enterprise, the closer the company and the supplier are in information sharing and production cooperation, and the shorter the company will be from receiving the order to delivering the goods to the customer. The rapid response of the company to customer demand reduces the distortion of demand and therefore reduces the bullwhip effect.