The Impact of Bullwhip Effect in a Highly Volatile Market

The bullwhip effect plays an important role in supply chain management especially in a highly volatile market where prices change due to many unexpected reasons brought about by different phenomenon such as global warming. Traditionally, one may expect a reduction on demand when there is a significant move on market price. However, the recent changes on global economy imply that the demand for a particular product may significantly increase as the price goes up in short time and it will come down in long run. There are many evidences to confirm this theory and as an example we could study the behaviour of price and demand for rice in September, 2008 in Iran’s economy. We present a mathematical model where demand is not only affected by price but also is influenced by the speed of price changes. Our model behaves identical the traditional demand model, where demand is only a function of price and price elasticity, when price rise is sluggish. However, in the event that there is a big shock in market price, the model has completely different attitude. The proposed model examines the bullwhip effect using the Lyapunov exponent.