Bullwhip effect | Course Paper

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Sohal, Solórzano, Song 1

LSCM 4530-007

Synthesis of Articles Project

Team 13

Dr. Manuj

The Bullwhip Effect in the Supply Chain Industry

INTRODUCTION

The bullwhip effect is a phenomenon that is common in most industry. It is described as

a trend of larger and larger swings of demand order variabilities as they move up the supply

chain (Lee, Padmanabhan, Whang). Without being able to control this phenomenon, its

consequences are negative and can be costly. It could lead to inefficient production, excessive

inventory, and tense relationship between buyer and supplier. With complete comprehension of

the bullwhip effect, companies can ultimately win in a fast-moving, competitive market by

counteracting it effectively and maximize profits with elimination of unnecessary costs. The

purpose of this project is to examine the bullwhip effect in depth including its definition, causes,

and countermeasures involving technologies utilized in Logistics and Supply Chain industry. By

comparing and contrasting four articles, we will learn about the general concepts and common

practices shared among.

SUMMARIES

Starter Article

Lee, Padmanabhan, Whang’s article, The Bullwhip Effect in Supply Chains goes into

detail of the causes behind the bullwhip effect and ways to eliminate it. One cause of the

bullwhip effect is demand forecast update. Demand forecast updating factors in history by using

the customer’s past orders to create the supply chain structure that can help accommodate their

future needs in a more efficient manner. Bullwhip occurs with erroneous forecasts. To avoid it,

Sohal, Solórzano, Song 2

LSCM 4530-007

Synthesis of Articles Project

Team 13

Dr. Manuj

companies should avoid creating multiple demand forecasts. This can be done by making the

demand data available for the upstream companies, that way they can create their own forecast

that corresponds with the downstream company. The key to demand forecast updating is

planning. If everything is planned accurately, bullwhip has no chance of occurring. Another

cause for the bullwhip effect is order batching. Rather than ordering on a daily basis, companies

tend to group the orders together on a weekly basis, sometimes even monthly. Although it seems

like it can be a time saver, but demand is not always predictable. In order to avoid bullwhip,

orders should be pushed out evenly throughout the week. It won’t eliminate the bullwhip

entirely, but it will keep it to a minimal. Also, another cause behind the bullwhip effect is price

fluctuation. Since most companies engage in forward buying, pricing fluctuation occurs due to

special promotions such as discounts, coupons, etc. These kinds of promotions make customers

buy more in one transaction as opposed to their usual amount. In order to counteract bullwhip,

companies should stabilize prices by creating a systematic pricing procedure. This is

accomplished by either reducing the amount of promotions or by creating an everyday low price

policy. One of the last causes of bullwhip that is explained in the article is rationing and short

gaming. When the demand for product surpasses the supply, the companies tend to ration the

products. Once the demand level goes down, they cancel their orders which throw manufactures

into a loop since they don’t have enough information about what the customer truly wants.

Hence the name rations and short gaming. In order to avoid bullwhip with rationing, companies

should focus on allotting products based on past order history as opposed to the present date

ones. Furthermore, to avoid short gaming, companies should make their inventory and capacity

data with their customers. Doing this assuages the customer’s apprehension on receiving the

Sohal, Solórzano, Song 3

LSCM 4530-007

Synthesis of Articles Project

Team 13

Dr. Manuj

product in a timely manner and also reduces their need to participate in gaming. This article

doesn’t just explain how to avoid bullwhip effect, it also provides reasons behind it, which gives

everyone a better understand about this occurrence.

Major Article 1

In the article The Supply-Chain Management Effect, Kopczak and Johnson discuss about

six major shifts that have guided companies in choosing which supply-chain management

initiatives and enablers they should implement. Supply-chain management is not just about order

fulfillment, but it now refers to all the processes from product generation through end-of-life