...BUULLWHIP EFFECT BACKGROUND The bullwhip effect occurs when the demand is amplified in the supply chain as they move up in the channels of the supply chain of a firm. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies. Companies can effectively counteract the bullwhip effect by thoroughly understanding its underlying causes. Procter & Gamble (P&G) introduce this term. Logistics executives at Procter & Gamble (P&G) examined the order patterns for one of their best-selling products, Pampers. Its sales at retail stores were fluctuating, but the variabilities were certainly not excessive. However, as they examined the distributors' orders, the executives were surprised by the degree of variability. When they looked at P&G's orders of materials to their suppliers, they discovered that the swings were even greater. At first glance, the variability did not make sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variability in the supply chain were amplified as they moved up the supply chain. P&G called this phenomenon the "bullwhip" effect. (In some industries, it is known as the "whiplash" or the "whipsaw" effect.) Causes of the Bullwhip Effect Researchers found out that the factors which cause the bullwhip effect are the demand forecasting and amplification of oeders to the upper level of the supply chain. The best illustration of the bullwhip effect is the well known...
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...Matthias Spleit (0966118) The Bullwhip Effect What is the bullwhip effect? The bullwhip effect is an observed phenomenon in supply chains and points out the magnification of demand fluctuations, especially when demand increases and decreases. The main reason for this phenomenon is a lack of demand information in the supply chains. FORRESTER was the first who mentioned the bullwhip effect in the literature.1 He studied the behaviour of dynamic systems in industrial organisations, by analysing different parameters like stock sizes, production rates and time delays and demonstrated the effects on these parameters, whenever modifications are applied. The outcome of his analysis was, that in a simple production- and distribution system, a small interruption or fluctuation in demand at the retail stage can cause a significantly stronger fluctuation in the whole system.2 These fluctuations have first been considered to be unavoidable and beyond the control of the respective companies. Forrester cleared up that misunderstanding on the basis of a four level dynamic system, showing the organisational structure of a production- and distribution system: Illustration: Bullwhip Effect3 1 2 Forrester, J. (1972), 21ff. Forrester, J. (1972), 22. 3 http://sinaslogisticsblog.blogspot.co.at/2010/04/bullwhip-effect.html (13.01.2015) 1 Matthias Spleit (0966118) There are four main operational factors that stimulate the bullwhip effect:4 1. fixed costs in production, ordering...
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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...
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...companies and commercial. With the development, together with development of the information technology, among other factors, show up the possibility of supply chain managed, which is know as Supply Chain Management. It is very important to understand first the objectives of the Supply Chain Management therefore give a close up at the Bullwhip Effect and understand its causes and understand how to minimize it. 2. Bullwhip Effect Supply Chain coordination functions well as long as all stages of the chain take actions that together increase total supply chain profits. Each part of the chain should maintain its actions in a good relation to other participants and the supply chain in general and make decisions beneficial to the whole chain. If the coordination is weak or does not exist at all, a conflict of objectives appears among different participants, who try to maximize personal profits. Besides, all the relevant information for some reason can be unreachable to chain participants, or the information can get deformed in non-linear activities of some parts of chain which leads to irregular comprehension. All these lead to the so-called Bullwhip Effect resulting from information disorder within a supply chain. Different chain phases have different calculations of demand quantity, thus the longer the chain between the retailer and wholesaler the bigger the demand variation. It is possible to say...
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...9/27/2010 I. Product Availability The Bullwhip Effect does impact the supply chain performance measure of product availability, when the demand is overestimated due to BWE, there is an increase on the PA. When the demand is underestimated due to BWE, there is a decrease on the PA. Amplification (demand inflation) can increase service level at least on a temporary basis because there will be more supply produced to keep up with demand. Oscillation (demand variability) would usually lead to stock outs and hence reduced PA. Product availability can be measured by service level, and stock outs would lead to a decrease in PA and a decrease in customer satisfaction. Forecasting demand becomes increasingly difficult as the bullwhip effect is incurred, creating variability in the true demand downstream. This will impact the product availability because without understanding the true demand actual demand forecasts may be inflated or under forecasted depending on the nature of the bullwhip effect. This can also be seen when product rationing is in effect, the customers might inflate their order quantities to get a larger ration of product and thereby inflating demand even further. The sudden surge of orders during times of product rationing would create unrealistic demand projections. As the gap between the actual demand of product vs supply decreases the ‘phantom’ orders would start to disappear and the manufacturer is left with an overstock of inventory. II. Sharing Sales...
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...Bullwhip Team Assignment Answer 1: Customer necessities are in continuous change, which are transmitted to the supplier as unstable demand. Along with this, a business has a very complex task to do, predict their replenishment orders (how much and when) to satisfy their clients. This prediction is based on the customer’s data from prior activity, the unstable demand, so are inaccurate. As we look futher from the customer, up the chain the demand increases (bullwhip effect) as a result the Inventory cost and the shipping and receiving cost, increases too. Increase in the Inventory Cost In order to handle unstable demand and no lost sales or even worst, customers; the replenishment orders increase the inventory, creating a safety stock that carries out cost, of products that are not being sold. In addition of the cost of using a warehouse (rent, insurance, etc.) space that is not being use or utilized more efficient (such as different products that might be in short inventory). Indeed materials here are in risk to be damaged for being stocked for a long period of time, or deteriorate, which will bring more cost. Even more, if we need to repackage or give a special price so the customer will acquire. The cost will increase also, if a new product comes out to replace one of the inventories, making it obsolete and more difficult to sell. Increase Shipping and Receiving Cost Here it is clear that when a replenishment order is being entered to the facilities, it has...
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...The Bullwhip Effect The meaning of Bullwhip effect is not very clear when we hear just the word. But when studied the term very carefully, it provides information more about how the main manufacturer or a member of a supply chain deals with the demands of the customers by creating appropriate supplies for them. Bullwhip effect happens in two different scenarios; first, the company failed to predict the big flow of demands for their products and in turn, the demand of the customers are not met. Second, the company created more products because they had predicted that there will be more demand but in actual, the demand is very poor and in effect, the company have a lot of unsold supply stockage. When you researched in the internet about bullwhip effect, you can see various graphs of whips interweaving with each other in ascending fluctuations. That is so true. But to explain it clearly in words, bullwhip effects involves many companies that are linked together because they are suppliers/buyers of each others products because they need those products to create their whole big product. Example: Car manufacturing will purchase products from tire manufacturer, engine manufacturer, paint supplier, metals(alloy/steel/titanium) supplier, etc. If the car manufacturer needs to create 50 cars, the different suppliers (supply chain participants) will then provide the needed supplies. If by the end of the month, the company sold all the cars but the customers demands for 50...
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...The Bullwhip Effect Market demand helps determine at what level to set production output for one particular good. When consumers demand more of a certain product, the retailers in turn will demand more of it from the wholesalers, which in turn causes an increase in demand from manufacturers as well. The market may have moved a little bit, but as the demand information travels up the supply chain, the upstream supplier may be seeing a much bigger swing. The lack of supply chain coordination leads to a phenomenon known as bullwhip effect (BWE), in which fluctuation increases as we move up the supply chain from the retailers to wholesalers to manufacturers to suppliers. The bullwhip effect distorts demand information within the supply chain, with each stage having a different estimate of what demand looks like (Sangwan & Sharma 2015:387). With distortions happening in bigger magnitude a negative impact on business performance will take place such as inventory disruption, quality control problems, cost of transportation, diminished customer service and increase cost of material and manpower. There are numerous factors which contribute to the bullwhip effect. Four major causes we could mention are price fluctuations and sales promotions, order batching, shortage gaming and forecast inaccuracies. Sales promotion and price discount result in customers buying in large quantities and stocking up and as a result the buying pattern doesn’t reflect the actual consumption. With...
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...The bullwhip effect (or whiplash effect) is an observed phenomenon in forecast-driven distribution channels. It refers to a trend of larger and larger swings in inventory in response to changes in demand, as one looks at firms further back in the supply chain for a product. The concept first appeared in Jay Forrester's Industrial Dynamics (1961) and thus it is also known as the Forrester effect. Since the oscillating demand magnification upstream a supply chain is reminiscent of a cracking whip, it became known as the bullwhip. Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop, thereby not reducing inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer). This sequence of events is well simulated by the Beer Distribution Game which was developed by MIT Sloan School of Management in the 1960s. The causes can further be divided into behavioral and operational...
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...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...
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...“The bullwhip effect in supply chain: Reflections after a decade” . CELS 2008, Jönköping, Sweeden. (presented by EmreEryılmaz). Note: This is the final draft version of this paper. Please cite this paper (or this final draft) as above. You can download this final draft from http://research.sabanciuniv.edu. THE BULLWHIP EFFECT IN SUPPLY CHAIN Reflections after a Decade Gürdal Ertek, Emre Eryılmaz Sabancı University, Orhanlı, Tuzla, 34956, Turkey Abstract A decade has passed since the publication of the two seminal papers by Lee, Padmanabhan and Whang (1997) that describes the “bullwhip effect” in supply chains and characterizes its underlying causes. The bullwhip phenomenon is observed in supply chains where the decisions at the subsequent stages of the supply chain are made greedily based on local information, rather than through coordination based on global information on the state of the whole chain. The first consequence of this information distortion is higher variance in purchasing 1 quantities compared to sales quantities at a particular supply chain stage. The second consequence is increasingly higher variance in order quantities and inventory levels in the upstream stages compared to their downstream stages (buyers). In this paper, we survey a decade of literature on the bullwhip effect and present the key insights reported by researchers and practitioners. We also present our reflections and share our vision of possible future. Keywords: Bullwhip Effect...
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...game – Lego game Supply chain game – Lego game XXXXXX Casper XXXXXX Casper Supply Chain Management Supply Chain Management Introduction First and foremost the game provided an understanding of the bullwhip effect and furthermore also insight to the challenges of distributing material and information within a supply chain. I have applied the cause-effect theory in order to obtain an understanding of the root causes, the reasons, to why the bullwhip effect, the result, occurred in the supply chain in the LEGO game (Slack, Chambers and Johnston, 2010). Hence the structure of this assignment will be based upon a cause-effect analysis which treats the experienced bullwhip effect as the result. Thus this assignment describe the causes of this effect identified through reflecting upon the LEGO supply chain game played September 25, 2015. Bullwhip effect The bullwhip effect is unexpected distortion of information observed in a supply chain and can be caused by demand fluctuations e.g. variability, which is processed and amplified through the companies in a supply chain. The demand fluctuations are amplified as they are processed upstream in the supply chain and hence the swings, the demand order variability, of the “bullwhip” can be expected to increase the farther upstream in the supply chain a company is located (Lee, Padmanabhan and Wheng, 1997). Reflections and learning outcome from the game I will divide this reflection and learning outcome section...
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...Supply Chain Coordination and Bullwhip Effect Name University Instructor Institution Date Supply chain coordination and bullwhip effect Introduction The development of effective coordination in organizations is essential for the maximization of the process of turning competitive advantage into profitability. Such coordination must occur both within the organization production and sales departments and beyond to include organizations contracted to handle its products. The process of coordination seeks to ensure that customer satisfaction is achieved through the adoption of approaches that are in tandem with their point of view. Organizations also adopt supply chain coordination to enable them align their plans with the objectives of individual enterprises that that handles their products. As such, the process emphasizes on the management of inventories and the ordering process within the organization and also within other organizations that do business with the company (Gupta & Mishra, 2012). Bullwhip effect is a trend that results into significant swings in the inventory responses in relations to alterations customer’s demands. The instability witnessed with the customer’s demand leads to the need for organizations make forecasts for demands in order to enable them position their inventory and other resources in line with the customer demand. As a product moves up the supply change, the participants within the chain observe variations in demand and this...
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...THE BULLWHIP-EFFECT IN A MULTI LEVEL SUPPLY CHAIN NETWORK Research in Progress Reisich, Friedrich, University of Duisburg-Essen, 2247800, Essen, Germany, friedrich.reisich@stud.uni-due.de Abstract Forrester discovered the amplification and oscillation of order information in supply chains about 55 years ago and called it the Bullwhip Effect. Since then researchers look for reasons and try to find countermeasures. Most of the countermeasures which were formulated in the last decades are based on experiments with simple linear supply chain models consisting of two to four serial levels. In reality supply chains are complex and dynamic systems. In this paper we developed a dynamic simulation model of a complex simulation network and statistically examine whether the countermeasures described in the scientific literature work or do not work. The preliminary results shows us that at least one countermeasure which works perfectly in linear supply chains is also suitable for complex supply chain networks. Keywords: Bullwhip Effect, Forrester Effect, Whiplash Effect, Supply Chain Networks.. IS Research Fundamentals 1 1 Introduction The Bullwhip Effect or Forrester Effect is a major problem in supply chains. It was first discovered by Forrester (1972) who realized that variations of demand increase up as one moves up the supply chain from the ultimate customer to the ultimate producer. This phenomenon is considered one of the main reasons for inefficiencies...
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...Supply Chain Management Assignment ON BULLWHIP EFFECT AND DELAYED DIFFERENTIATION Submitted to Prof Dr. P.R.S.Sarma Submitted by VENKATA RAJA GOPAL RACHERLA Regd. No.: 1226109236 SEC-B MBA (IB) - 2009-11 1 INDEX S No. I 1 2 3 Topic Bullwhip effect Introduction Explanation Causes of Bullwhip Effect Possible Remedies The Bullwhip effect in the electricity sector Conclusion Postponement or Delayed Differentiation Page no. 3 4 4 5 4 5 6 7 6 II 1 10 11 12 Introduction 2 Forecasting uncertainty 14 3 The long-term potential 16 2 THE BULLWHIP EFFECT 3 1. Introduction 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...
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