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Supply Chain Management: An International Journal

Emerald Article: Diagnosis and reduction of bullwhip in supply chains


Peter McCullen, Denis Towill

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Research paper
Diagnosis and
reduction of bullwhip in
supply chains
Peter McCullen and
Denis Towill

The authors
Peter McCullen is Senior Lecturer, Supply Chain
Information and Integration Research Group (SCI2),
Brighton Business School, University of Brighton,
Brighton, UK.
Denis Towill is Research Professor, Logistics Systems
Dynamics Group (LSDG), Cardiff Business School,
Cardiff University, Cardiff, UK.
Keywords
Supply-chain management, Materials management,
Flow production
Abstract
``Bullwhip'' describes the general tendency for small
changes in end-customer demand to be amplified within a
production-distribution system. A 10 per cent increase in
sales to end-customers can precipitate a 40 per cent
upswing in production and subsequent downswing (as
excess stocks are depleted) within a three-echelon supply
chain. It is shown how proven material flow control
principles significantly reduce bullwhip in a global supply
chain. The evidence demonstrates that a methodology,
which has evolved over several decades, provides a
suitable framework for effective change. Bullwhip is not a
new problem; it is a new name coined to describe a very
well-known problem. Some observed barriers to change
are briefly reviewed.
Electronic access
The research register for this journal is available at
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The current issue and full text archive of this journal is
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http://www.emeraldinsight.com/1359-8546.htm
Supply Chain Management: An International Journal
Volume 7 . Number 3 . 2002 . pp. 164179
# MCB UP Limited . ISSN 1359-8546
DOI 10.1108/13598540210436612

Introduction
Bullwhip, as recently coined by Lee et al.
(1997), is still an extensive and expensive
problem in real world supply chains. But
under its old guise of demand amplification it
was a phenomenon well documented first, in
the USA by Forrester (1961) and, second, in
the UK by Burbidge (1984). Possible
solutions for reducing bullwhip were also
proposed by Forrester (based on a
DYNAMO simulation model) and by
Burbidge based on his shopfloor observations,
supplemented by industrial engineering
analysis. Since those early days the Forrester
and Burbidge ideas have been greatly
extended and further refined. They have also
been successfully applied in a number of
supply chain scenarios, with a significant
reduction observed in the bullwhip effect. So
it is clear that proven solutions to bullwhip are
available for those businesses wishing to
reduce costs and to increase customer service
levels.
Yet 40 years on, the phenomenon can be
observed in many internal, national and
international supply chains. Documented
examples include:
.
automotive products (Edgehill et al.,
1988);
.
machine tools (Fine, 1998);
.
retail products (Holmstrom, 1997);
.
packaged meals (Fransoo and Wouters,
2000);
.
paper making (Hameri, 1996); and
.
electronic products (Van Aken, 1978).
Why is this? Are the solutions not well enough
known? Are they difficult to understand? Are
they difficult to implement, especially in the
global economy? Or are they difficult to tie in
with business strategy? Meanwhile bullwhip
continues to manifest itself and is very
unforgiving, involving both successive
overstocking and under-stocking or requiring
increased capacity followed by underutilisation. Frustratingly, it often results in
concurrent poor performance in both areas.
These problems are bad enough where supply
chain actors are in close proximity, but the
problems can multiply, as supply chains are
extended across the globe. Some idea of the
present situation can be gleaned from the top
ten bullwhip cliches shown in Table I, which
has been compiled on the basis of our
experience. It seems that, despite widespread
knowledge of the bullwhip phenomenon,

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Peter McCullen and Denis Towill

Table I Top ten bullwhip cliches


Common cliche

Description

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip

The
The
The
The
The
The
The
The
The
The

ignorance cliche
arrogance cliche
negligence cliche
indifference cliche
transference cliche
acceptance cliche
despondence cliche
decadence cliche
intolerance cliche
avoidance cliche

Doesn't exist in the real world


Is just an academic invention
Doesn't cost me any money
So what? the customer can wait
So what? the suppliers can cope. That's what service level agreements are for!
It's like tax always with us
It's a systems problem nothing I can do about it
It's old hat surely it's been eradicated by now?
Japanese solutions don't work here
Those solutions are all very well but not in my industry

there are many barriers to change, a topic to


be discussed later in the paper.
In the paper we describe bullwhip induced
by supplier discounting in a fast-moving
consumer goods (FMCG) supply chain. This
was attenuated through a revised pricing
policy and value stream re-design. We then
compare MIT beer game performance with
that achieved in a European retail supply
chain, showing that real world replenishment
demand is even more volatile than simulation
results would suggest (McCullen and Towill,
2001). Bullwhip elimination measures are
encapsulated into four material flow control
principles, and their successful application
demonstrated in a global supply chain for
precision mechanical products. We conclude
the paper by considering ``barriers to change''
that may hinder the diffusion of bullwhip
elimination practices.

Figure 1 Demonstration of Forrester-induced demand amplification and


rogue seasonality via simulation of a production-distribution system

Types of bullwhip
The bullwhip effect, as defined by Lee et al.
(1997), is a phenomenon whereby:
Information transferred in the form of orders
tends to be distorted and can misguide upstream
members in their inventory and production
decisions . . . the variance of [replenishment]
orders may be larger than that of sales [to end
customers], and the distortion tends to increase
as one moves upstream . . .

Viewed more fundamentally, bullwhip refers to


the amplification of end-customer order signals,
whereby upstream replenishment demand and
physical shipments exceed the original order
quantity, as shown in Figure 1(a). A second
aspect of Lee's wild-west metaphor is the
periodicity of the whiplash, whereby amplified
demand causes successive upswings and
downswings in factory output and supply chain

inventories. The time period between


successive peaks and troughs may be
sufficiently predictable to create the illusion of
seasonality, as shown in Figure 1(a).
Rogue seasonality is analogous to the
behaviour of a hardware system operating
with the wrong sort of feedback. For example,
the sort of amplifiers used in the public
address (PA) systems employed at music
events contain internal feedback loops which
are designed to reduce distortion and to
improve the fidelity of the amplified response.
Internal circuits compare the output
waveform with the input, and the negative of
the difference is fed back to the input, thereby

165

Volume 7 . Number 3 . 2002 . 164179

Peter McCullen and Denis Towill

correcting the distortion created in the high


temperature stages of the power amplifier.
This type of feedback (the right sort) is so
effective and untroublesome that high fidelity
amplification is now taken for granted.
However, music PA systems are also subject
to the wrong sort of feedback, or
``howlround'', whereby the stage microphones
pick-up sound from the loudspeakers, starting
off as an echo and finishing in a deafening
``shriek'', as the PA system is triggered into
unstable oscillatory response. The tone of the
``shriek'' is partly a function of the distance
between the speakers and the microphone
which corresponds to a speed-of-sound time
delay, and partly a function of the frequency
response curves of the various PA system
components. Bullwhip is analogous to
``howlround'', but there are many more
potential causes of the supply chain
phenomenon.
The amplification tendency of productiondistribution systems was first discovered in
the USA by Forrester (1958) and in the UK
by Burbidge (1984). Forrester, who worked at
the Massachusetts Institute of Technology
(MIT), was a control engineer with expertise
in the design of fire protection systems. He
famously developed a simulation model of a
representative production-distribution system
(Forrester, 1961). Forrester's methodology
was based on control theory and employed
continuous functions to model system
performance. The other pioneer, Burbidge,
started his working life as an apprentice of the
Bristol Aeroplane Company. During the
Second World War he moved to the Ministry
of Supply, and then joined the Royal Air
Force (RAF) as an Engineering Officer
involved in wartime production of Spitfires
(Logistics Focus, 1995). After the war he
worked variously as chief planner, sales
manager, works director and managing
director in such companies as the Bristol
Aeroplane Company, R.A. Lister and David
Brown. He later became a consultant and
academic with the International Labour
Organisation. Burbidge's approach was based
on his practical experience of production
planning and control. In contrast with
Forrester, Burbidge's work emphasised the
``sharp edged'' and discontinuous nature of
production. Taken together, both
perspectives are able to provide the
comprehensive explanation (Towill, 1997) of
the causes of bullwhip shown in Figure 2.

Figure 2 Input-output diagram showing Forrester and Burbidge sources of


demand amplification

Feedback logic refers to the way in which


planning and control systems employ
feedback loops to correct inventories in much
the same way as an audio amplifier is
designed to minimise distortion. For example,
the master production scheduling process
(MPS) involves a comparison of the projected
stock balance with the target stock, where:
Projected stock (t1) = actual stock (t0)
demand forecast (t1)
+ planned production (t1)

(1)

If, as a result of poor sales in the previous


period, the projected stock exceeds the target
stock by say 25 units, the master production
scheduler (or scheduling algorithm) may
decide to reduce planned production in
period t1 or t2 by 25 units, or, by some
fraction thereof. In this way, stock
discrepancies are fed back into work-inprogress (WIP) orders via the MPS process.
The feedback logic employed in planning and
control systems varies according to the length
of time delays and the proportion of the stock
discrepancy that is fed back into the MPS.
Forrester showed that the feedback logic
employed in typical production-distribution
systems actually contributes to system
instability, so as to induce both amplification
and rogue seasonality. His hope was that
practitioners would employ his DYNAMO
software in order to model and design
production-distribution systems with superior
dynamic performance.
Feedforward logic refers to the way in
which forecasting algorithms are used to

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Peter McCullen and Denis Towill

Volume 7 . Number 3 . 2002 . 164179

determine production and target inventories


for future periods. In exponential smoothing,
for example, constants are chosen that
determine the relative proportions of actual
and forecast that is fed forward into future
periods. However, these forecasting
mechanisms can contribute to system
instability, for example, by over-reacting to a
temporary sales blip and building unnecessary
inventory that must be depleted by cuts in
future production.
Uncertainty is a major source of bullwhip.
Supply chain actors find themselves in
potentially stressful situations, where product
shortages will lead either to lost sales or to
back orders. Whilst organisational checks may
exist for overstock situations, the sanctions
applied to planners who frustrate the efforts of
salespeople and their revenue (and
commission) objectives are generally more
serious. The ideal low-stress state for an
inventory planner is one of steady customer
demand coming in pretty much as forecast,
with manufacturing or suppliers reliably
shipping to the forecast-derived pattern of
orders already placed. However, both supply
and demand are subject to uncertainty, which
has the potential to disturb both customer
service and the sleep patterns of the inventory
planner! Where demand significantly exceeds
the forecast, there are likely to be product
shortages. Houlihan (1988) has identified two
paths by which uncertainty can contribute to
amplification. One response to a local product
shortage may simply be to over-order to
protect against future shortages, thus
amplifying the demand signal sent to the
upstream echelon. Where this demand signal
is used to update the forecast that drives the
upstream echelon's own replenishment, there
may be further amplification via the
feedforward logic already discussed. Houlihan
describes this first path as the ``production
flywheel effect''. However, the over-ordering
may itself precipitate unreliable delivery from
the supplier, who is now faced with aboveforecast demand. Faced with an ``unreliable
supplier'', the inventory planner may, in his
efforts to secure a good night's sleep,
additionally decide to increase his safety
stock. This ``amplified `Forrester' effect''
further distorts the demand signals that are
fed to the upstream echelon. Another route by
which uncertainty contributes to
amplification is the service level method for
setting safety stocks described by Waters

(1992), and shown in Equation (2). Here Z is


chosen according to the probability of stockouts implied by the service level policy,  is
the standard deviation of demand, and LT is
the replenishment lead-time:
Safety stock Z  standard deviation
of lead time demand
Z 

p
LT

This method is incorporated algorithmically


into some software packages for inventory
management. Where  and uncertainty are
high, as they are where demand already
includes some rogue seasonality, safety stocks
are increased to act as a buffer against above
average demand. The initial order for safety
stock represents an addition to customer
demand, and therefore constitutes
amplification. Whilst strategic safety stocks
and pipeline inventories may indeed
contribute to the achievement of customer
service, they also act as a form of ``inertia'' by
increasing the time delay over which supply
can be adjusted to a new level of demand.
New (1993) employs the example of a textile
supply chain to show that supply chain
responsiveness to an increase in demand is
generally faster than the response to a
decrease in demand, because of the need for
``supply chain draining''. In his underwear
example, the composite manufacturing/
procurement lead-time is 62 days and
cumulative supply chain inventory is 120
days. Whilst short-term demand fluctuations
could be met from the inventories in the
system, it would take 62 days to respond to a
real increase in demand and 120 days to
respond to a real decrease in demand.
However, it would take 182 days to respond
to change in consumer tastes; say from boxer
shorts to jockey pants.
Time delays in supply chain feedback loops
are much greater than the millisecond delays
found in music auditoriums, which is why the
wavelength of rogue seasonality (the
trough-to-trough distance in the time
dimension) is considerably longer than that of
the ``howlround'' sound wave emitted by a
poorly controlled PA system. Examples of
supply chain time delays include
manufacturing lead times, transportation
delays and the time taken to discover a stock
discrepancy or new requirement for materials.
This time delay is often a function of periodic

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Peter McCullen and Denis Towill

Volume 7 . Number 3 . 2002 . 164179

re-ordering, as in materials requirements


planning (MRP) or distribution requirements
planning (DRP). Metters (1997) has
paraphrased Buffa and Miller's (1979)
explanation of the way in which time delays
contribute to bullwhip:

be batched together by the supplier's MRP as


40, 40 and 50 units assuming a pattern of
four, four, five weeks per month. However, a
less evenly phased pattern of weekly orders
could lead to an even lumpier output from
MRP.
Multiple-phased ordering refers to
continuous review re-ordering, where there is
no predetermined order cycle. In this case
orders are triggered when the inventory is
depleted to its re-order level, at which point a
fixed order quantity (FOQ) is ordered, often
determined according to economic batch
quantity (EBQ) or economic order quantity
(EOQ) logic. Within distribution systems
multiple-phased ordering can precipitate
``demand-lumping'' (McCullen and Saw,
2001), whereby two or more distribution
centres, fed by a common warehouse, hit their
re-order levels simultaneously, leading to a
spike in warehouse demand equal to the sum of
the FOQs of the respective distribution centres.
Economic batch quantities represent the
minimum cost point on the trade-off curve
describing the relationship between annual
set-up and inventory-holding costs. For
purchased items there is a trade-off between
annual ordering cost (which can include
transportation) and inventory-holding costs,
and the EOQ arises from a similar ``least cost''
analysis. Both EBQ and EOQ are used to
determine the item FOQs or minimum order
quantity parameters employed in inventory
management systems. Figure 3 illustrates the
ways in which EBQ and EOQ contribute to
amplification.

Imagine a product with constant deterministic


demand that is delivered through a supply chain.
The retailer sees a permanent 10 per cent drop in
sales on day 1 but, consistent with the re-order
policy, does not place an order for less than a
typical amount until day 10. Accordingly, the
wholesaler notes the 10 per cent decrease on day
10, but does not place an order until day 20. As
this process moves up the supply chain, the firm
furthest upstream may not discover the decline
in demand for several weeks. During this time,
however, they are producing at the old rate,
which is 1/0.9 = 111 per cent of the new
consumer requirement. Consequently, excess
production of 11 per cent per day would have
accumulated since day 1. Owing to the overstock
position, production may be cut back by
substantially more than 10 per cent an
exaggerated reaction to the actual demand
decrease.

This situation may then lead to oscillation, or


rogue seasonality, once supply chain stocks
are depleted and upstream production is
beguiled into increasing production to cover
both end-customer demand and the
re-stocking requirements of the downstream
echelons, evenually leading again to excess
stock and to further cuts in production.
Multiple-cycle ordering is a term used by
Burbidge (1978) to describe a situation where
there is no attempt to synchronise the
different periodic re-ordering systems
employed within the supply chain. For
example, a supplier organises his
manufacturing by means of a monthly MRP
system that is run on the last Friday of the
month, but his customer employs a weekly
periodic review system, which issues a batch
of orders every Monday. At best, there will be
a four-day time-delay between the issue of the
customer's orders on the last Monday of the
month and their being actioned in MRP the
following Friday. For customer orders issued
on the first Monday of the new month,
however, there could be a four-week and fourday time-delay before they are actioned in
MRP. The lack of synchronisation in multiple
cycle ordering systems leads to variable timedelays and random disturbances in the order
pattern. Supposing that the customer in the
above example issued orders of ten units per
week over a three-month period, these would

Bullwhip diagnostics
For managers who wish to minimise
unnecessary and costly variation in their
supply chain, it is important to understand
the specific causes of bullwhip. Forrester
effects can broadly be identified as continuous
changes in the echelon time-series for:
demand, orders, shipments, production and
inventory. Forrester effects generally exhibit
long-wavelength periodicity, which can
sometimes be related to the time-delays in the
feedback paths used to correct inventory
discrepancies. For example, a supply chain
driven by a monthly planning cycle with a
cumulative production-distribution lead-time
of two months- has a two-to three-month
time-delay in its feedback path for correcting

168

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Peter McCullen and Denis Towill

Figure 3 Illustration of EBQ and EOQ sources of amplification

inventory discrepancies. It may therefore


experience rogue seasonality with a
wavelength of around three months. Burbidge
effects arise from the batching of demand and
production, and can therefore be identified by
discontinuous (or sharp-edged) changes in
the time-series. Burbidge effects are generally
of shorter wavelength, although infrequent
re-ordering or large batch sizes are obviously
likely to induce longer wavelength
fluctuations, as in the following example.
Figure 4 illustrates four demand time-series
from an automotive-steel supply chain
(Taylor, 2000a). Demand from the
automotive manufacturer to the component
manufacturer (CM) is relatively stable, with a
coefficient of variation (coeff. var.) of 7.3 per
cent and no observable periodicity. The CM's
internal supply chain encompasses assembly,
pressing and blanking activities. The CM's
assembly scheduler employs demand
smoothing but, despite a virtually level
assembly schedule, the CM's internal supply
chain generates significant bullwhip, with
demand placed on the steel service centre
(SC) showing a coeff. var. of 30.8 per cent
and rogue seasonality of two-to four-weeks
wavelength. Thus we can see that Forrester
effects predominate in the downstream

echelons of the supply chain. The steel SC


then loads the steel mill with advanced orders,
although it supplies the CM from inventory
and ``calls-in'' steel from the mill on a weekly
basis (it is this time-series that is used to
measure the actual demand of the SC on the
mill). The batching logic employed by the SC
leads to an extremely spiky pattern of
advanced orders being placed on the mill,
with a 320 per cent coeff. var. and a
wavelength of six to ten weeks (these are very
large batches, representing some seven weeks
of average demand). Actual SC demand on
the mill is slightly less variable than the
pattern of advanced orders, showing an 80 per
cent coeff. var. and wavelength of two to three
weeks. Inspection of the time-series for the
upstream echelons reveals sharp-edged and
discontinuous waveforms, which indicate
predominantly Burbidge effects.

Estimating the cost of bullwhip


The consequences of bullwhip are inventory
swings, additional inventory to buffer against
the uncertainties of variable demand,
unnecessary fluctuations in the level of
production and shipments, and ``patchy''

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Peter McCullen and Denis Towill

Figure 4 Variability along a supply chain for steel automotive components

product availability. If the costs of production


and distribution are linearly related to activity
levels the assumption employed within
standard costing systems, then the total cost
of bullwhip would be the sum of
bullwhip-related inventory costs and the
profit margin lost due to poor availability.
Metters (1997) has developed a sophisticated
model for estimating the cost of bullwhip
using a form of dynamic programming that
models the optimum supply chain response to
a number of demand patterns. Two sets of
demand pattern are modelled. The first set
represents ``induced seasonality month by
month on an annual basis caused by incorrect
demand updating . . .'', which we define as the
Forrester type of bullwhip. It consists of three
time series representing ``none'', ``moderate''
and ``heavy'' variation. The mean value for
each series is 12, with coefficients of variation
of 0 per cent, 72 per cent and 133 per cent
respectively, and a trough-to-trough
wavelength of five months. The second set
represents ``induced seasonality week by week
on a monthly basis caused by order batching'',
which we define as the Burbidge type of
bullwhip. It also consists of three time series
representing ``none'', ``moderate'' and
``heavy'' variation. The mean value for each
series is also 12, with coefficients of variation
of 0 per cent, 58 per cent and 115 per cent
respectively, and a trough-to-trough
wavelength of two weeks. Both Forrester and
Burbidge sets are fed into a dynamic
programming model in order to estimate the
profitability of an optimal supply chain
response to each. These results are then
compared in order to estimate the percentage

improvement in profitability that might be


expected for each of the three bullwhip
improvement scenarios shown in Table II. It
is noticeable that the benefits of reducing
Forrester bullwhip range from 8.4 per cent to
a 20.1 per cent improvement in profitability,
whereas the benefits of mitigating the
Burbidge phenomenon are less than 2 per
cent. This result is explained by the different
periods over which anticipation inventories
must be held to buffer the demand peaks; a
matter of months in the first case but only
weeks in the second. As Forrester bullwhip is
clearly the most expensive, Metters' further
analysis focuses on this phenomenon.
Production and distribution are, in reality,
capacity-constrained, and it may not be
possible to increase activity levels to cope with
peak demand. For a product with truly
seasonal or fashion-related demand this will
mean lost sales rather than backorders. In the
``capacitated'' column we have shown the
range of improvements that could be achieved
where supply chain capacity is constrained to
125 per cent of average demand. Note how
the benefits of bullwhip attenuation increase
under these circumstances.
The results quoted so far have assumed that
unit costs increase linearly with output, which
is also the case in the standard costing systems
used to control many businesses. In reality
companies face additional costs when they
increase activity beyond the ``normal'' level,
i.e. they may have to pay their staff overtime
or offer premium rates for temporary labour,
outsource production to a contractor, hire
additional vehicles or warehousing space etc.
These non-linear effects tend to drive up unit

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Peter McCullen and Denis Towill

Table II Percentage improvements in profitability estimated for three bullwhip reduction scenarios
Supply chain type:
Bullwhip type:

Bullwhip reduction scenario


Moderate to none
Heavy to moderate
Heavy to none

Uncapacitated
Burbidge
Forrester
0.6
1
1.6

10.5
8.4
20.1

Capacitated
Forrester

Penalty
Forrester

Capacitated
with penalty

13.4
16.1
31.7

8.7
11
21

22.1
27.1
52.7

Source: Based on results from Metters (1997)

costs and output is increased beyond the


``designed capacity''. Equally important, unit
costs also increase when output is reduced
below the designed capacity (in the troughs),
because under-utilisation means that fixed
costs must be spread over fewer units.
Metters' results encompass the first possibility
by including a range of penalty costs
associated with bullwhip, and we have shown
the effect of a penalty equal to 50 per cent of
unit cost (these penalty costs could equally be
used to represent stock obsolescence or the
cost of losing customers to competitors). In
the last column we represent the combined
effects of capacity constraints, leading to lost
sales, and increasing unit costs at the limits of
capacity. Under these circumstances the
benefits of bullwhip attenuation range from
22.1 per cent to a 52.7 per cent improvement
in profitability. It is important to note that the
dynamic programming model employed here
assumes an optimal supply chain response,
and therefore represents the lower bound of
profitability improvement!

Rogue seasonality in a grocery supply


chain

.
.
.
.
.
.

overtime;
shift premiums;
quality variances;
additional transportation;
handling; and
storage charges.

This costly result is surprising when a cursory


examination of Figure 5 reveals a marketplace
demand that could have been satisfied by a
simple order profile; consisting of just a few
ramps and plateaux! In other words, by
responding to true marketplace demand, a
series of level schedules placed on suppliers
would have sufficed, a situation ideally suited to
lean supply (Suzaki, 1987). Instead the supply
chain operated in the unnecessarily costly agile
mode by responding to a ``rogue'' demand.
By recognising the real cause of the problem
Campbell's have since instituted a policy
enabling continuous replenishment at a
negotiated discounted price. The result has
been a two-week reduction in retailers'
inventories. It has been estimated that this has
``leveraged up'' the sale of chicken noodle
soup by 50 per cent, since profit margins are
Figure 5 An example of the ``player''-induced bullwhip effect in an FMCG
supply chain

In addition to the factors listed above


Bullwhip may also be induced by the business
strategy. Figure 5 shows the effect of a
supplier discount on a retail supply chain
(Fisher, 1997). Discount offered by
Campbell's soups caused an upswing in retail
demand that was magnified throughout the
chain by the bullwhip effect, and
corresponding to the ``heavy'' variability
analysed above (Metters, 1997). This
produced a typical dynamic profile, with
increased demand being amplified as it passed
upstream to generate a surge in physical
shipments. The on-costs were considerable
for all echelons all incurred at a busy time of
year when resources were already stretched,
and included:
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Volume 7 . Number 3 . 2002 . 164179

very sensitive to stock-turns for these fastmoving consumer goods. Hence everyone has
gained from Campbell's action to improve
supply chain dynamics, because both
production and distribution costs have been
reduced as a result of the smoother material
flow achieved throughout the supply chain
(Fisher, 1997). Later in the paper we present
four generic material flow control principles,
visible within Campbell's re-engineering
programme, which can be used to eliminate
bullwhip and to improve the performance of
virtually any supply chain.

published by Sterman (1989). In the game


each level is trying, often in vain, to anticipate
what the true demand is, meet their
immediate customer's demand and
simultaneously keep control of its own
inventory. The bullwhip effect is significant
and unmistakable, but, high though it
appears, it is in fact less serious than the
bullwhip estimated for the retail supply chain
discussed in the next section.
As Sterman (1989) has indicated, the
problems faced by the players include lack of
communication within the chain, lack of
knowledge concerning true consumer
demand, and a delay in information transfer.
In our own experience, most of the difficulties
arising in the beer game (and in the real
world) can be traced to the lack of sound
market demand information available
throughout the whole supply chain. The beer
game is a highly simplified model of a supply
chain, with only one product and one decision
point at each level. But, even when presented
with just these few variables, some managers
(who often claim to be running very complex
operations) find it very hard to control
ordering procedures and stock levels. It is
therefore unsurprising that organisations have
trouble meeting consumer demand
effectively, especially given the distortion and
delays to which market sales information is
subject in the real world.

Gaming to understand the behaviour of


supply chain actors
One of the most useful supply chain
demonstrators is the MIT beer game
(Jarmain, 1963). Over the years the game has
been played many thousands of times and in
many locations. It is now available in a
computerised version (Kaminsky and
Simchi-Levi, 1998), and has been extended to
explore decision support systems (DSS) in
Bullwhip Explorer by Lambrecht and
Dejonckheere (1999). In basic form the game
represents a four-level supply chain. Each
player is responsible for decision making at a
particular echelon (retailer, wholesaler,
distributor, and brewery). The game may be
played under various scenarios, including one
in which each player acts in isolation.
The driving force in any supply chain is to
meet end-customer demand, but very few
players respond directly to the market, and
must instead rely on replenishment demand
from the downstream echelon. In the beer
game, end-customer demand exhibits some
variability, but upstream responses vary more
wildly at each level. Bullwhip magnification
may be estimated via the peak values shown in
Table III, which is based on typical results

Bullwhip in a confectionery supply chain


Our first real-world bullwhip example is
based on a European retail supply chain.
Holmstrom (1997) has analysed the orders
flowing upstream from retail outlets back to
the factory. He studied in depth a traffic
building (high volume), low margin product,
and a low traffic (low volume), high margin
product. Demand amplification was

Table III Typical bullwhip results from playing the beer game
Supply chain
echelon

Multiplicative
bullwhip factor
ex. marketplace

Peak stock

Inventories
Peak backlog

Swing stock

Marketplace
Retailer
Wholesaler
Distributor
Brewery

1.0
3.5
4.5
11.5
14.00

20
55
20
75

10
30
50
25

30
85
70
100

Source: Authors, based on data by Sterman (1989)

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Volume 7 . Number 3 . 2002 . 164179

estimated via the coefficient of variation


measure (standard deviation/average value),
as discussed in detail by Fransoo and Wouters
(2000). We have calculated the bullwhip
factor as the ratio of the coefficients of
variation estimated as the orders are passed
up successive echelons in the supply chain.
The results are shown in Table IV. They
demonstrate real-world bullwhip, which is
even larger than that predicted by the beer
game, and promulgates wildly upstream
exactly as Van Aken (1978) has related, based
on his experiences in Philips' Eindhoven
plants.
Note that the bullwhip factors yield
important insights into the behaviour of the
various ``players'' in the chain. The
downstream players (shops and wholesalers)
are the biggest culprits in the sense of
bullwhip generation. They exhibit little
difference in attitude to ordering policies for
either low margin or high margin products,
with bullwhip factors at around three to one.
Not so the factory scheduler. He treats the
two products differently, and significantly
dampens down the demand volatility in the
factory orders placed for the high volume
product. This is most likely to have been
achieved via some version of level scheduling
(Suzaki, 1987). In contrast, the same
scheduler is quite prepared to induce further
substantial bullwhip into the system, when
considering the low volume product.
Deliveries from the factory also exhibit some
bullwhip, but it is of a smaller order of
magnitude than that generated by the
downstream ``players''. The total bullwhip
factor over the entire chain is 9:1 for the high
volume product, and nearly 29:1 for the low
volume product; considerably worse than the
14:1 bullwhip factor reported for the beer
game in Table III. In the confectionery supply
chain the extent of the bullwhip problem is
therefore considerably worse than the beer

game would suggest for one of the value


streams. Hence on this evidence the beer
game provides an inadequate account of
bullwhip. In other words, in the real world
there are even more triggers of bullwhip ready
to be activated!
Inspection of the time series presented by
Holmstrom (1997) also enables some
comment to be made on likely causes of the
bullwhip in this retail supply chain. As
suggested in Table IV, this retail supply chain
demonstrates that, whereas Forrester effects
dominate near the marketplace, Burbidge
effects (mainly batching of orders in this case)
start dominating the upstream order pattern.
In other words, reducing bullwhip requires
different tactics according to the echelon level
within the supply chain.

Four proven material flow principles for


bullwhip reduction
Over the last two decades Cardiff LSDG has
been involved in several large-scale projects
on improving the dynamic performance of
supply chains. They have involved industrial
case studies, detailed mathematical analysis;
model simplification; simulation and
subsequent optimisation via the SMART
algorithm (Gardiner and Ford, 1980; Del
Vecchio and Towill, 1988). This research has
concentrated on obtaining guideline
benchmarks for comparing the various
strategies for improving supply chain
performance. It is in the latter context
(i.e. prioritising/choosing between various
strategies) that we have found dynamic
simulation invaluable. Wikner et al. (1991),
for example, show that steps to providing
effective damping of demand amplification
fall into four major categories, which appear
sufficiently general to be termed material flow

Table IV Demand amplifications within a real-world real-world European retail supply chain
Interface across
which demand
amplification occurs
Shop orders/purchases
Wholesaler/shop orders
Factory orders/wholesaler
Deliveries from factory/
factory orders

High volume/low margin product


Demand amplification Comments on waveforms

Low volume/high margin product


Demand amplification Comments on waveforms

2.60
2.88
0.72

Primarily Forrester effect


Forrester and Burbidge effects
Levelled scheduling

3.14
3.05
2.39

Primarily Forrester effect


Forrester and Burbidge effects
Pronounced Burbidge effect

1.67

Forrester and Burbidge effects

1.25

Pronounced Burbidge effect

Source: Authors, based on results by Holmstrom (1997)

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principles, and can be considered appropriate


to all supply chains. These are:
(1) Control systems principle. This involves
selection of decision support systems,
including synchronisation and avoidance
of the batch-and-queue scenario, as being
appropriate to good dynamic control of
the total supply chain (if process lead
times are reliable and operations
information of high quality, then good,
robust control systems can also be
simple). This principle could encompass
Burbidge's (1978) period batch control,
which involves the application of
single-cycle, single-phased ordering in a
multi-product batch production
environment, or JIT scheduling using
level schedules and synchronisation
through takt times in a cellular
manufacturing system (Womack and
Jones, 1996).
(2) Time compression principle. This involves
re-engineering in order to compress
material and information-processing lead
times (reduction of these is within the
technological and organisational remit of
individual echelons). Shorter time delays
enable faster inventory adjustments and
limit the extent of inventory
discrepancies. Where rogue seasonality
still exists, it is likely to have a shorter
wavelength, as feedback loops are closed
more quickly.
(3) Information transparency principle. This
involves the widespread provision of high
integrity operations information
throughout the supply chain. The
availability of Web-based supply chain
information systems, for example I2,
means that information transparency is
now within the grasp of many companies.
However, the quantity and quality of data
available from end-customer to raw
materials source remain a commercially
sensitive issue, and must be negotiated in
the context of inter- and intra-company
relationships.
(4) Echelon elimination principle. This involves
the elimination of redundant echelons
and functional interfaces. This removes
the time delay and information distortion,
but may lead to a substantially different
channel of distribution.

realistic solution not requiring rocket science


to implement (although it does require rocket
engineering!). This is because effective supply
chain management (SCM) requires a high
level of material flow control (Farmer and
Van Amstel, 1991), a discipline which is
readily identified with practical systems for,
say, rocket steering. However, the hardware
systems analogy is even more powerful, as
Towill (1982) has demonstrated. Using
transfer function models, he proved that the
basic building-block typically used to
represent each echelon in a supply chain has
exactly the same form as those previously
established for a range of hardware systems.
These ``equivalent'' systems include weapon
launchers, aircraft autopilots and radar
trackers (Towill, 1981). We are thus able to
tap into a comprehensive knowledge base of
good practice in systems design, knowing that
it is highly relevant to SCM. Such generic
models can then be included in standard
simulation software tailored to investigate
specific industrial situations (Balle, 1995).

The material flow principles outlined above


provide supply chain management with a

Bullwhip in a global supply chain for


mechanical products
Company A has three UK factories which
manufacture complex mechanical systems.
They export mainly to Europe, the USA, and
Japan and the Pacific Rim. Over 90 per cent
of UK production is exported to whollyowned overseas companies, which sell on to
end-customers and OEMs. During the
middle to late 1980s the company
experienced very strong sales growth and
decided to increase capacity on several
occasions. Behind the success story, however,
supply chain actors were experiencing
considerable stress, brought about by a
number of problems (McCullen and Towill,
2000):
.
central warehouse safety stock was often
depleted by ``greedy'' overseas
subsidiaries;
.
overseas subsidiaries either grossly
exceeded stock objective or fell far short
of it;
.
commercial administration sometimes
could not identify true end-customer
requirements amongst a ``sea'' of
backorders, and found it difficult to
advise factory materials management on
priorities and optimum product mix;

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Peter McCullen and Denis Towill


.

the overall supply chain was unresponsive


to changes in customer demand, with a
cumulative lead time of 23 weeks to react
to changes in the sales forecast; and
some products, on back order due to
above-forecast demand and with
consequently increased production,
would suffer from a phenomenon,
whereby, just at the point when UK
stocks were recovering, overseas demand
would collapse, leading to excess stock
and cuts in future production.

As a result of these problems, the overseas


stocks that were intended to provide off-theshelf availability were often significantly
higher than planned. At the same time,
customer service often fell short of market
requirements with the associated build-up of
stocks out-of-phase with end-customer
demand.

Bullwhip reduction through time


compression and supply chain
integration
In response to this situation the company
instigated a long-term global supply chain reengineering and agile manufacturing project
called the rapid response programme (RRP).
The fundamental objective was to reduce the
company's dependence on forecasts. Table V
relates the actions taken within the RRP to
the four material flow principles outlined
above.
The RRP directly reduced manufacturing
lead-time via kanban-driven line side
replenishment and by changing from batch
assembly to single piece unit flow.
Furthermore, the UK factories were linked
directly to international customer demand via
an integrated distribution requirements
planning (DRP) system, which could
distinguish between: end-customer orders,
forecast and safety stock requirements within
the distribution system. Time compression
throughout the chain enabled DRP to be run
on a weekly and then a daily basis. The
original planning and control process had
involved a quarterly sales re-forecast feeding
into a quarterly master production schedule
(MPS) review, which was ``tweaked'' every
month on the basis of customer orders. By
increasing the frequency of the planning
process the company were able to couple UK

production much more closely with


international demand, and the cumulative
information processing and manufacturing
delays were reduced from 23 weeks to two
weeks (over 90 per cent time compression).
This in turn has enabled a substantial revision
of the decision rules used in inventory
management, which is now simpler and more
robust. Physical distribution in the global
supply chain has also been streamlined to
achieve time compression and a more rational
distribution of safety stock.
Figure 6 shows the effect of company A's
RRP on US sales and UK production of
product 1 over a five-and-a-half-year-period.
Product 1 is uniquely supplied to an OEM,
and the pattern of US sales has a periodicity
of three to five months, possibly due to
rogue seasonality in the OEM's supply
chain. Prior to the implementation of RRP,
company A's production exhibits substantial
amplification and periodicity with a
wavelength of around 15 months, a
consequence of the substantial time delays
in the traditional supply chain. Following
the implementation of RRP the production
time series shows diminished amplification
with periodicity reduced to four to five
months; a consequence of the reduced time
delays and faster inventory adjustments
operating in the re-engineered supply chain.
By month 57, UK production starts to track
US sales, as pipeline inventories are now
substantially reduced, and supply chain
actors have learned how to operate
effectively within the new supply chain
structure.
The company's RRP clearly embraces
supply chain engineering principles of:
.
synchronisation;
.
time compression;
.
echelon elimination;
.
transparent information flow; and
.
selection of appropriate system controls.
As a result of RRP bullwhip and stock
variability were reduced by 36 per cent and
33 per cent for a sampled range of products,
and global stock-turns roughly doubled over a
four-year period. Customer service
performance was also greatly improved, with
a 90 per cent reduction in average days late
against customer due date and delivery
variation reduced by 74 per cent at the
US subsidiary.

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Table V Implementation of material flow principles within a rapid response programme


Material flow principles utilised
Appropriate
Time
Information
control systems compression transparency

Supply chain
improvement action

Detailed rapid response


programme consequences

Manufacturing lead time


reduction

Most products changed from MRP-driven


batch production to single unit flow
assembly

Line side materials supply with kanban


replenishment eliminates component lead
times from the chain
UK factories linked to
international customer demand

Distribution requirements planning (DRP)


introduced
DRP generates production demand to
cover customer requirements,
replenishment needs, and forecast sales

DRP generates short-term distribution


plans and shipment data for widespread
circulation
More frequent and rapid
planning

DRP now runs in weekly (not monthly)


time buckets

Production demand fed directly to the


factory, thus eliminating operationsplanning function and associated
interfaces
Streamlined physical distribution

Reduced time delays impacting


on new decision rules

DRP creates MAAPICS purchase orders


with quantities selected to meet
distribution lead time requirements

Kanban system retains inventory at the


central warehouse until the last possible
moment, thus minimising global stock
imbalances

Cumulative information-processing delays


and manufacturing lead times reduced
from 23 weeks to two weeks
Further reduction in material-processing
delay achieved via substantial revision of
decision rules used to manage system
inventory

Source: Towill and McCullen (1999)

Globalisation and the barriers to


bullwhip reduction
Supply chain dynamics was predicted to be a
major change management challenge for the
last decade of the twentieth century (Towill,
1992). It is therefore reasonable to examine
why the penetration of good practice has been
so slow. For example, a quick scan audit
(QSA) of 20 automotive sector value streams
established that only two could be regarded as
``exemplars'', when assessed on the

effectiveness of their material flow control


systems (Towill et al., 2000). Fortunately the
QSA also indicated that at least six further
value streams were demonstrating some good
practice and actively implementing the four
material flow control principles
(Childerhouse, 2001). But why is best
practice taking so long to penetrate?
One reason must be that bullwhip a good
indicator of the state of material flow is a
three-dimensional problem, as shown in
Figure 7. The replenishment dimension is the

176

Echelon
elimination

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Peter McCullen and Denis Towill

Figure 6 Company A's supply chain's US sales and UK production of product 1

best known, since it relates to order


transmission along the supply chain. The time
dimension is less well understood, since
capacity and inventory problems come to
light well after the bullwhip-triggering event.
Finally, there is the geographical dimension,
which means that the impact of bullwhip is
felt far away from its origin, and the metaphor
``out-of-sight, out-of-mind'' readily describes
this scenario. Indeed, the globalisation of
many supply chains seems likely to further
obscure the cause-and-effect relationships

that determine supply chain performance.


See, for example, Taylor's (2000b) current
state map of a footwear supply chain that
extends 10,000 miles from Texon's lining and
insole plant in North Yorkshire to trainer
assembly plants in China and the Far East,
from whence the finished product is shipped
to customers world-wide, some of whom live
in North Yorkshire!
Some additional barriers to change are the
factors represented by the bullwhip cliches in
Table I. The transference cliche is particularly

Figure 7 The three-dimensional nature of bullwhip in the global supply chain: a potentially major source of
instability in international operations

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Volume 7 . Number 3 . 2002 . 164179

prevalent, since there is a tendency just to


pass the problems (as well as the orders)
upstream, rather than re-engineering the
business interfaces between the echelons. As
Harland (1995) has shown, it is not only
orders that are subject to the bullwhip effect.
She found that misperceptions between
supply chain actors were amplified at
interfaces located upstream from the
marketplace. And the further upstream the
interface, the greater was the misperception.
Is it possible that players of the MIT beer
game, having learned the benefits of
partnering, then regress to adversarial
behaviour as a result of the structural
conditions that frame their relationships?
Finally, change management programmes
must be properly designed, implemented and
supervised during start-up. Not only did
company A understand the principles of
material flow control, but they implemented
them via their RRP and carefully monitored
the results. It is interesting to note that the
time dimension also applies to improvements,
and that inventory performance was still
improving four years after the initial
implementation of RRP.

data may be readily available even within the


multiple-enterprise supply chain. The
obstacles to bullwhip acknowledgement are
slowly being eliminated. Indeed, it is possible
that the first two bullwhip cliches may
disappear in the not too distant future.
Regrettably, the other eight cliches may be
with us just a little longer.
Once acknowledged, it is clear that the
problem must be tackled by designing out of
the system as many potential causes of
bullwhip as can reasonably be tackled within
one (or more) BPR programme(s). The tools
already exist and are encapsulated in the four
material flow control principles demonstrated
in company A's global supply chain. These
are:
(1) to select control systems which contribute
to the dynamic performance of the supply
chain;
(2) to compress material and informationprocessing lead times;
(3) to provide high integrity operational
information throughout the supply chain;
and
(4) to eliminate redundant echelons and
interfaces wherever they occur.

Conclusions

References

Bullwhip is alive and travels well over long


distances and sometimes takes a long time to
be identified. It has three dimensions,
involving replenishment (how magnification
is observed); time (how long to amplify?); and
geography (how far it travels?). The
globalisation of supply chains leads to an
increase in the time delays and the distances
involved, and may therefore both exacerbate
bullwhip and obscure its causes. However,
bullwhip is increasingly being quantified and
acknowledged, as we have shown above.
Hines and Rich (1997), for example, identify
``demand amplification mapping'' as one of
seven value stream mapping tools that can be
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within a value stream. Further help is at hand
in the guise of new information systems. The
widespread diffusion of enterprise resource
planning (ERP) means that the vertically
integrated enterprise is now, for the first time
ever perhaps, able to collect the time-series
data necessary to quantify bullwhip. The
further diffusion of Internet-based
information systems means that time-series

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Further reading
Stalk, G.H. and Hout, T.M. (1990), Competing against
Time: How Time-based Competition Is Reshaping
Global Markets, Free Press, New York, NY.

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