Bi-level Optimization as a Bullwhip Effect Mitigation Strategy for Supply Chains

The bullwhip effect (BWE) is a major challenge in supply chain management, driven by the amplification of demand variability due to forecasting errors and inventory decisions. This paper proposes a novel integration of Bi-level optimization with Decision-Dependent Uncertainty (DDU) in a multi-period setting. By linking decisions across two or more time periods, the model establishes a Chronological Weak Dominance (CWD) structure, in which the leader’s decision at time t influences the follower’s decision at time t+1, enabling partial control over future uncertainty. This formulation converged order and supply, as shown in a simulation experiment using real-world data. The approach reduced the BWE up to 76% due to the unique CWD conditions, with little profit decrease. The findings demonstrate that embedding DDU within bi-level, multi-period decision frameworks is an effective strategy for improving supply chain stability, mitigating the BWE.