Bullwhip Effect

In: Business and Management

Submitted By rvrgopal2000
Words 1895
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What is the Bullwhip Effect? The bullwhip effect is the magnification of demand fluctuations, not the magnification of demand. The bullwhip effect is evident in a supply chain when demand increases and decreases. The effect is that these increases and decreases are exaggerated up the supply chain. The essence of the bullwhip effect is that orders to suppliers tend to have larger variance than sales to the buyer. The more chains in the supply chain the more complex this issue becomes. This distortion of demand is amplified the farther demand is passed up the supply chain. Proctor & Gamble coined the term “bullwhip effect” by studying the demand fluctuations for Pampers (disposable diapers). This is a classic example of a product with very little consumer demand fluctuation. P&G observed that distributor orders to the factory varied far more than the preceding retail demand. P & G orders to their material suppliers fluctuated even more. Babies use diapers at a very predictable rate, and retail sales resemble this fact. Information is readily available concerning the number of babies in all stages of diaper wearing. Even so P&G observed that this product with uniform demand created a wave of changes up the supply chain due to very minor changes in demand.

EXPLAINATION OF THE BULLWHIP EFFECT

The graphical representations above show the bullwhip effect between two supply chain partners. It can be seen that the Distributor orders to the factory experience demand fluctuate far more drastically than the retail demand. Over time as the Distributor builds inventory and fulfills orders, it communicates very different demand levels to the upstream factory by the order amounts it requests. This becomes more complicated the farther up the supply chain we go.

Causes of Bullwhip Effect This effect is ascribed to a few particular causes as discussed below: Demand Forecast…...

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