Returns and the bullwhip effect

An almost universal assumption in the bullwhip effect modeling literature is that excess goods may be returned without restriction. We seek to determine if returns impact the level of bullwhip effect observed in a multi-stage supply chain. We build a hybrid agent/ discrete-event simulation model of a supply chain and execute it under various conditions of demand variance, lead-time variance, information sharing, and return allowance. We find that permitting returns significantly increases the bullwhip effect. As a result, applying models that assume returns are permitted will systematically overestimate the bullwhip effect for supply chains that restrict returns.