Using EOQ ordering at both the retailer and the distributor, what is the size of the bullwhip effect at DiaperCo?

DiaperCo learns that, as of now, both the retailer and the distributor use (S,Q)-policies. The (S,Q) policy is also known as the Order-Point, Order-Quantity policy, and is essentially a two-bin system. The policy is "Order Q? units when Inventory Position is less than the re-order point S".

This means that:

- All orders have the same quantity Q (which you need to calculate as explained in the next bullet point).

- The retailer and the distributor each use the EOQ formula to find the order quantity (Q), using the forecasted demand for the next 20 periods (have this in mind when determining your D for calculations).

-Remember that what is considered demand for the distributor is not the same than what is considered demand for the retailer!

-The holding cost for the 20 periods is $1 per unit for the retailer, and $0.5 per unit for the distributor.

-The ordering cost is $1,000 for the retailer and $2,000 for the distributor.

For both the retailer and the distributor, an order is placed when the inventory on hand in the beginning of a period is below certain level, S. This level is given by the average sales in a period plus a safety stock. For the retailer, the safety stock is 5,000 units. For the distributor the safety stock is 10,000 units.

Retailer Retailer Distributor Distributor Time period Demand orders Inventory orders Inventory 12000 25000 10580 2 11501 3 9778 4 12804 5 12033 6 10102 7 10995 8 9880 9 9750 10 10200 11 12956 12 9909 13 10002 14 12034 15 11444 16 7899 17 10223 18 10433 19 10563