Bull Whip Effect

Bullwhip Effect
• The bullwhip effect is a phenomenon where demand changes at the

end of a supply chain lead to inventory fluctuations along the
chain. Generally, slight variations in demand at the customer or
retailer level reverberate up the chain causing greater discrepancies.
Causes of Bullwhip Effect
• Demand forecast updating is done individually by all members of a supply chain.
Each member updates its own demand forecast based on orders received from its
“downstream” customer. The more members in the chain, the less these forecast
updates reflect actual end-customer demand.
• Order batching occurs when each member takes order quantities it receives from
its downstream customer and rounds up or down to suit production constraints
such as equipment setup times or truckload quantities. The more members who
conduct such rounding of order quantities, the more distortion occurs of the
original quantities that were demanded.
• Price fluctuations due to inflationary factors, quantity discounts, or sales tend to
encourage customers to buy larger quantities than they require. This behavior
tends to add variability to quantities ordered and uncertainty to forecasts.
• Rationing and gaming is when a seller attempts to limit order quantities by
delivering only a percentage of the order placed by the buyer. The buyer, knowing
that the seller is delivering only a fraction of the order placed, attempts to
“game” the system by making an upward adjustment to the order quantity.
Rationing and gaming create distortions in the ordering information that is being
received by the supply chain.
Minimization of Bullwhip Effect
• Accept and understand the bullwhip effect
The first and the most important step towards improvement is the recognition of the presence
of the bullwhip effect. Many companies fail to acknowledge that high buffer inventories exist
throughout their supply chain. A detailed stock analysis of the inventory points from stores to
raw material suppliers will help uncover idle excess inventories. Supply chain managers can
further analyze the reasons for excess inventories, take corrective action and set norms.
• Improve the inventory planning process
Inventory planning is a careful mix of historical trends for seasonal demand, forward-looking
demand, new product launches and discontinuation of older products. Safety stock settings
and min-max stock range of each inventory point need to be reviewed and periodically
adjusted. Inventories lying in the entire network need to be balanced based on regional
demands. Regular reporting need to be implemented for major deviations from the set
inventory norms.
• Improve the raw material planning process
Purchase managers generally tend to order in advance and keep high buffers of raw material to avoid
disruption in production. Raw material planning needs to be directly linked to the production plan.
Production plan needs to be released sufficiently in advance to respect the general purchasing lead
times. Consolidation to a smaller vendor base from a larger vendor base, for similar raw material, will
improve the flexibility and reliability of the supplies. This, in turn, will result in lower raw material
inventories.
• Collaboration and information sharing between managers
There might be some inter-conflicting targets between purchasing managers, production managers,
logistics managers and sales managers. Giving more weight to common company objectives in
performance evaluation will improve collaboration between different departments. Also providing
regular and structured inter-departmental meetings will improve information sharing and decision-
making process.
• Optimize the minimum order quantity and offer stable pricing
Certain products have high minimum order quantity for end customers resulting in overall high gaps
between subsequent orders. Lowering the minimum order quantity to an optimal level will help provide
create smoother order patterns. Stable pricing throughout the year instead of frequent promotional
offers and discounts may also create stable and predictable demand.
LATEST TECHNOLOGIES IN SUPPLY CHAIN MANAGEMENT
• Artificial Intelligence
• Predictive analytics
• Internet of Things ( IoT)
• Conversational Systems
• Process Automation
• Immersive Technologies
• Blockchain

Bull Whip Effect

Uploaded by

Copyright:

Available Formats

Bull Whip Effect

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Bull Whip Effect

Uploaded by

Copyright:

Available Formats

Bullwhip Effect

• The bullwhip effect is a phenomenon where demand changes at the

You might also like