Bullwhip Effect

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Bullwhip Effect can be described as the variability in orders in a supply chain system moving up from consumers to core manufacturers. It is also known as the whiplash or whipsaw effect. There is several implication of the bullwhip effect. In a few words distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. From many years Bullwhip Effect has played crucial role in supply chain management. Proctor & Gamble (P&G) has seen the bullwhip effect in case of supply chain of Pampers diapers, which caused increase in cost and more and more tedious to cope up supply with demand in market. 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, such as 3M, they discovered that the swings were even greater. At first glance, the variabilities did not make sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variabilities 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.)
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