le in action, consider a p of 8 and a lead-time between the franchise and Orem of 2, and a lead-time of 2 between Orem and the belt manufacturer. The overall lead-time would therefore be the sum of all their lead times or 4. Therefore, the variance in the order placed by the belt manufacturer will be at least 250% of the variance of customer demand seen by the franchise. 1.3.3 DECENTRALIZED INFORMATIONIn this approach, customer demand is not shared freely with all the links in the supply chain. The franchise places an order based on their predication. The Orem Studio places an order based on their own predication. And the belt manufacturer places an order based their prediction. As a result of the lack of communication and cooperation, the bullwhip effect equation accounts for extra links by multiplying the variances due to lead-times together for each link in the chain (Chen, p. 441). The resulting equation is: (6)The mathematical derivation of this equation can be found on pages 441 of the Chen, Drezner, Ryan and Simchi-Levi article.To see this principle in action, consider a p of 8 and a lead-time between the franchise and Orem of 2, and a lead-time of 2 between Orem and the belt manufacturer. This time we are unable to simple sum the lead-times. Instead, we must go through an iterative process of calculating and multiplying results. The variance experienced by the Orem studio is 163%. The variance experienced by the belt manufacturer will be 163% of the variance experienced by the Orem studio. As a result, the variance experienced by the belt manufacturer will be at least 264% of the customer demand seen by the franchise. By comparing this value to that of 250%, as found under the centralized information strategy, it is easy to see the value in sharing data through a centralized strategy. The value of sharing data is even more obvious when you consider a longer supply chain. Table 1 shows a more comprehensive set of d...
