The Bullwhip Effect in Supply Chain

We have identified four major causes of the bullwhip effect:

1. Demand forecast updating

As we can see from the figure2, the orders placed by the

dealer to the manufacturer have much greater variability

than the consumer demands. Because the amount of

safety stock contributes to the bullwhip effect, it is intuitive

that, when the lead times between the resupply

of the items along the supply chain are longer, the fluctuation

is even more significant.



One remedy to the repetitive processing of consumption

data in a supply chain is to make demand data at a

downstream site available to the upstream site. Hence,

both sites can update their forecasts

with the same raw data. In the computer

indtistry, manufecturers request

sell-through data on withdrawn stocks

from their resellers' central warehouse.

Although the data are not as complete

as point-of-sale (POS) data from die

resellers' stores, they offer significantly

more information than was availahle

when mantiiacturers didnt know what

happened afrer they shipped their

products.

Supply ch;un paruiers can iLse electronic

data interchange (EDI) to share

data.

2. Order batching

company may not immediately place

an order with its supplier. It often hatches or accumulates

demands hefore issuing an order. There are

two forms of order hatching: periodic ordering and

push ordering.



One reason that order batches are large or order frequencies

low is the relatively high cost of placing an

order and replenishing it. EDI can reduce the cost of

the paperwork in generating an order.

Another reason for large order batches is the cost of

transportation.

In fact, even if orders are made with

little effort and low cost through EDI, the improvements

in order efficiency are wasted due to the full truck load

constraint.



3. Price fluctuation

Forward buying, special promotions like price discounts,... [continues]

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