Measuring the Bullwhip Effect

Termpaper for International Logistics
WS14/15
Lecturer: Christian Deckert

Johannes Wolff
BA13, International Business , International Trade
1132214046
Table of Contents

List of Figures ii 1. Introduction 1 2. The Bullwhip Effect as a Supply Chain Phenomenon 1 2.1. Managing the Supply Chain 1 2.2. The Bullwhip Effect as Supply Chain Dynamics 2 2.3. The Bullwhip Effect as an Inevitable Consequence of Supply Relations—The Beer Game 3 2.4. The Reasons for the Bullwhip Effect 3 2.5. Studying the Bullwhip Effect in Data 5 3. Formal Analysis of the Bullwhip Effect 7 3.1. Models Based on Serially Correlated Demand 7 3.2. Measuring the Effect of Transparency 8 4. Mitigating the Bullwhip Effect 8 4.1. Information Policy 8 4.2. Reducing Lead Time 8 4.3. Collaboration of Retailers 9 5. Summary 9 References 10 Appendix 12

List of Figures

Figure 1: Order fluctuations in the beer supply chain 12

1. Introduction

The US-American telecommunications company CISCO depreciated 2.25 million US dollars in the third quarter of 2001 due to excess stock (Beer, 2014, p. 1). According to Beer (2014, p. 3.) the bullwhip effect is the probably most important reason for this depreciation. The bullwhip effect affects production and leads to a shortage of stocks or excess stocks, drops in sales, increases inventory costs and instability of planning (Beer, 2014, p. 3). Productivity losses due to the bullwhip effect are between 10 and 30%, according to Beer (2014, p. 3).
Thus, eliminating the bullwhip effect is one of the most important goals of supply chain management. Since the length of production chains has increased over the last decades, due to the implementation of cost-reducing outsourcing and since new inventory strategies are implemented to increase efficiency, the importance of overcoming the