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PAGE 58 PAGE 1 Exploration of the Bullwhip Effect Based on the Evolutionary Least-Mean-Square Algorithm Ling-tzu Tseng?, Ling-fang Tseng? and Heng-chou Chen* ?Department of Information Management *Department of Computer and Communication Engineering Chienkuo Technology University No. 1, Chieh Shou N. Rd., Changhua City, 500, Taiwan ABSTRACT The bullwhip effect, a well known phenomenon occurring in business activity where the demand information is not fully shared among the members of supply chain, conducts the upstream manufacturer to excessively anticipate the demand capacity of the downstream retailer. The manufacturer improperly decides the amount of the products not only to raise the inventory cost on the way of poorly handling the actually downstream demand, but also to lose the chance of business deals due to its backordering. To cope with the bullwhip effect by taking into account the holding and backorder costs, this paper proposed a prediction system based on an evolutionary least-mean-square algorithm to estimate the downstream demand, which consequently enables the batch ordering of manufacturer to close the estimated inventory level. Keywords: Bullwhip Effect, Inventory Cost, Least-Mean-Square Algorithm, Particle Swarm Optimization 1. Introduction There exists a negative influence in the area of supply chain management, called the bullwhip effect, as Lee et al. described [1], a small variance in the customers’ demands may cause remarkable variance in the stocking volumes of suppliers due the distorted demand information between the members of a supply chain. Recently, there is a growing literature on the bullwhip effect and its impact on supply chain performance. The bullwhip effect can be regarded as a magnification of order oscillations while one moves up the supply chain. This magnification is usually measured in terms of a change in the variance of orders placed at each supply chain level. The demand distortion propagates upstream with amplificati