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Supply Chain Management: An International Journal

Want to reduce the bullwhip? Measure it. Heres how


Ming Jin, Nicole DeHoratius, Glen Schmidt,
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Want to reduce the bullwhip? Measure it.
Heres how
Ming Jin
Department of Operations and Information Systems, David Eccles School of Business,
University of Utah, Salt Lake City, Utah, USA
Nicole DeHoratius
Booth School of Business, University of Chicago, Chicago, Illinois, USA, and
Glen Schmidt
Department of Operations and Information Systems, David Eccles School of Business,
University of Utah, Salt Lake City, Utah, USA

Abstract
Purpose The popular beer game illustrates the bullwhip effect where a small perturbation in downstream demand can create wild swings in
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upstream product flows. The purpose of this paper is to present a methodical framework to measure the bullwhip effect and evaluate its impact.
Design/methodology/approach This paper illustrates a framework using SKU-level data from an industry-leading manufacturer, its distributors,
end-users and suppliers.
Findings Firms benefit from tracking multiple intra-firm bullwhips and from tracking bullwhips pertinent to specific products, specific suppliers
and specific customers. The framework presented in this paper enables managers to pinpoint bullwhip sources and mitigate bullwhip effects.
Research limitations/implications This paper presents a framework for methodically measuring and tracking intra-firm and inter-firm bullwhips.
Practical implications A disconnect exists between what is known and taught regarding the bullwhip effect and how it is actually tracked and
managed in practice. This paper aims to reduce this gap. For the various products analyzed herein, the authors show how using this framework has
the potential to reduce delivered product cost by 2 to 15 per cent.
Social implications Properly managing the bullwhip leads to lower inventories and potentially lower product prices while simultaneously
increasing firm profits.
Originality/value This paper presents a novel approach to systematically tracking intra-firm bullwhips along with bullwhips specific to a given
supplier or customer.
Keywords Tracking, Supply-chain management, Bullwhip effect
Paper type Research paper

1. Introduction A firm exhibits a bullwhip if the variability in its orders


placed amplifies the variability in its orders received. The
The bullwhip effect is a phenomenon whereby a small
reverse effect is called smoothing. The term bullwhip may
perturbation in downstream demand creates substantial
be used generically to allow for either amplification or
swings in upstream product flows (i.e. orders placed to
smoothing. While the conventional bullwhip calculation
upstream suppliers exhibit more variability than orders
measures the inter-firm bullwhip, Jin et al. (2016) present a
received from downstream customers). The beer (or root
framework to decompose the inter-firm bullwhip into three
beer) game illustrates the bullwhip effect and is a staple
intra-firm bullwhips:
offering within business education programs, as is
The shipment bullwhip is the difference between the
classroom instruction on how to mitigate the effect. Yet, in
variability in the order fulfillment stream (i.e. shipments)
our experience, many managers do not properly track and
and variability in the stream of orders received from
manage the bullwhip. We present a rigorous bullwhip
customers.
measurement framework and illustrate our approach using
The manufacturing bullwhip is the difference between the
SKU-level data from an industry-leading manufacturer
variability in the manufacturing stream and variability in
along with data from its distributors and suppliers.
the shipment stream.

The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1359-8546.htm The authors would like to thank Dr. Beverly Wagner and two anonymous
reviewers for their support and constructive comments.

Supply Chain Management: An International Journal Received 1 November 2016


22/4 (2017) 297304 Revised 26 February 2017
Emerald Publishing Limited [ISSN 1359-8546] 22 May 2017
[DOI 10.1108/SCM-02-2017-0088] Accepted 23 May 2017

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The order bullwhip is the difference between the variability empirical analyses (Anderson et al., 2000; Fransoo and
in the stream of orders placed to supplier(s) and variability Wouters, 2000; Svensson, 2003; Terwiesch et al., 2005; Lai,
in the manufacturing stream. 2005; Cachon et al., 2007; Bray and Mendelson, 2012; Duan
et al., 2015; Jin et al., 2016), simulation modelling
A key contribution of our work is to delineate how a firm can
(Campuzano-Bolarn et al., 2011, Campuzano-Bolarn et al.,
methodically track its three intra-firm bullwhips, along with
2013) and behavioral experiments (Croson and Donohue,
various intra-specific bullwhips which are specific to a given
2006; Cantor and Katok, 2012). Space is too limited to
product(s) and/or a given customer(s) and/or a given
effectively summarize this literature in full. We offer managers
supplier(s). We worked with one firm that, after gaining a
a framework that can be used to translate this research into
better understanding of its inventory fluctuations (as reflected
action. We demonstrate how managers can methodically track
in its intra-firm and intra-specific bullwhips), changed some of
bullwhips, recognizing that tracking is the initial step to any
its operations practices to reduce such fluctuations. According
future bullwhip-reduction efforts. We focus the remainder of
to our calculations, its bullwhip mitigation efforts had the
this paper on delineating this framework.
potential, across its portfolio of products, to reduce delivered
product cost by 2 to 15 per cent.
Before detailing our three intra-firm bullwhip measures in 3. How to measure the three component
Section 3, we offer in Section 2 a brief literature review. Our bullwhips
discussion in Section 3 includes several numerical examples We obtained data from a manufacturing firm that leads its
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from a leading manufacturing firm where we show the relative industry. To maintain the confidentiality of the firm, we
importance and interrelationships among the various present our data as if the firm makes cake mixes and use the
intra-firm bullwhip measures. We discuss in Section 4 disguised name Pinocchio Fudge (PF). PF produces multiple
additional factors the firm should consider in measuring its flavors of cake mixes such as triple chocolate, red velvet, angel
bullwhip. A summary and discussion follow in Section 5. food and so forth. The firm sells its cake mixes through a
number of distributors (fewer than ten). It receives orders
2. Brief literature review from distributors, manufactures the product and places raw
material orders to its suppliers, all based on a one-month
In the 1950s, Forrester (1961) studied demand fluctuations at
planning period.
a GE appliance plant, leading to the term the Forrester
effect (a precursor to the term bullwhip effect) and to Figure 1 presents the information and material flow streams
Forresters development of the field of system dynamics along within the PF facility that makes all cake flavors (see Table I
with his creation of the beer game. In the 1980s, economists for detailed data). Starting in the left-hand frame of Figure 1,
explored how a demand signal changes as one progresses we plot two of PFs flow streams:
upstream in a supply chain (Blanchard, 1983; Miron and 1 the cumulative set of orders received from customers; and
2 the aggregate stream of shipments to customers.
Zeldes, 1988; Rossana, 1998; Caplin, 1985; Blinder, 1986;
Kahn, 1987; Fair, 1989; Ghali, 1987). Much of their work The shipments are of course in response to the orders. The
centered on how (and when) inventory buffers smooth y-axis plots the volumes by month. All volumes are in
production relative to demand an effect that counters the thousands and as such can be thought of as thousands of boxes
bullwhip. of cake mix. Qualitatively, we observe a smoothing (and not an
Researchers credit Lee et al. (1997) with introducing the amplification) effect. In other words, the shipment stream is a
bullwhip phenomenon into the operations management (OM) bit smoother than the order received stream. However, such
literature. Lee et al. (1997) identify four root causes of the
bullwhip: demand signal processing, price fluctuation, order Table I Flow stream volumes as plotted in Figure 1 (thousands)
batching and rationing. Subsequent OM research focuses on Shipments
measuring the magnitude and extent of the bullwhip as well as Distributors from Manufacturer Manufacturer
identifying its causes. A variety of methodological approaches orders manufacturer production orders
can be found in this research including analytical models
(Cachon, 1999; Chen et al., 2000, 2017; Dejonckheere et al., Mean 290 286 302 314
2003; Gilbert, 2005; Li et al., 2006; Chen and Lee, 2012), SD 206 132 74 1,367

Figure 1 Firms shipment (left), manufacturing (middle), and order (right) bullwhips for all cakes

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smoothing is also possible when a firm elects not to fill all the CV in shipments (at Stage 2) by VSF (the superscript denoting
orders immediately. For example, it is possible that PF the focal firm F and the subscript S referring to the shipment
decided to withhold a full shipment to one distributor in stream). We define the difference VSF VFD to be the firms
anticipation of future orders from a preferred distributor. It is shipment bullwhip, denoted by BSF. We consider demand to be
also plausible that this smoothing is because PF lacks product. amplified when BSF takes on values greater than zero
Note that the exact bullwhip number will be quantified (BSF VSF VFD 0) and smoothed when BSF takes on values less
shortly. than zero (BSF 0).
The middle frame in Figure 1 duplicates the shipment plot If firm F holds finished goods inventory at any point in time
from the left frame and compares it to PFs production (i.e. (as denoted by the lower-left triangle in Figure 2), then its
manufacturing) flow stream. Note that the manufacturing manufacturing output stream (at Stage 3) will not necessarily
flow stream is less volatile than the shipment stream (again, to
match its shipment stream. For example, demand may be
be quantified shortly). The right-hand frame shows the raw
seasonal and firm F may overproduce (building inventory) in
material orders placed by PF. We scale the orders to reflect the
periods of slack demand and under-produce (shipping from
equivalent number of cake mixes they will yield. For example,
inventory) in periods of high demand (Cachon et al., 2007 and
if an order is for 10,000 pounds of flour, which will produce
Bray and Mendelson, 2015). Batch manufacturing and
20,000 boxes of cake mix, then we plot the volume as an order
for 20,000 boxes-worth of flour. uncertainties may also contribute to a manufacturing bullwhip
within the firm, defined as BM F
VMF
VSF, where VM F
denotes
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The three frames in Figure 1 are akin to a statistical


process control (SPC) chart in that they track a given the CV in manufacturing. Again, there may be amplification
measure over time. Figure 1 effectively depicts whether (BMF
0) or smoothing (BM F
0) of shipments.
each flow is smoothed or amplified. Note that all plots have The use of raw materials in manufacturing at Stage 3
roughly the same mean of 300 (over the long run, flows in induces replenishment orders at Stage 4. The order stream
equal flows out), but the plots reveal substantial differences may not exactly follow the manufacturing stream. For
in flow variability. To better understand these variabilities, example, a supplier may offer promotions that entice firm F to
we quantify the bullwhip or smoothing that occurs at each forward-buy. We denote the CV in orders placed by firm F by
step. VOF and define the order bullwhip as BOF VOF VM F
.
Amplification (BO 0) or smoothing (BO 0) may be
F F

3.1 Quantify the three intra-firm (component) observed.


bullwhips As previously noted, the conventional undecomposed
We depict in the upper-left portion of Figure 2 our focal firm inter-firm bullwhip (which we denote by BF) is the CV in the
(F) receiving orders from its downstream firm(s). This is the orders placed minus the CV in orders received. It is the sum of
first (most-downstream) stage. The variation in this demand the three intra-firm bullwhips:
stream is denoted by VFD. The superscript F refers to the focal
firm and the subscript D denotes that this parameter is the BF VOF VFD VSF VFD VM
F
VSF
variability in the demand stream. In academic papers,
VO VM BS BM BOF
F F F F
(1)
researchers often measure such variability with variance.
However, in a practitioner setting, we suggest using the
The same setup applies for firm Fs supplier one-level upstream
coefficient of variation (CV), defined as the standard deviation
in the supply chain. Using a superscript of U to denote Fs
divided by the mean, to allow for comparison across flow
streams with differing means. upstream supplier, we have, analogous to Equation (1):
Firm F may choose not to (or may not be able to) fulfill
demands immediately. Therefore, its shipments to the BU VOU VUD VSU VUD VM
U
VSU
downstream firm may not exactly match its demand. We denote VOU VM U
BSU BM U
BOU

Figure 2 Decomposing the focal firms inter-firm bullwhip into three intra-firm (component) bullwhips (the shipment, manufacturing and order
bullwhips)

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At the downstream customer, we use a D superscript: managers may want to track select intra-specific bullwhips.
These are shipment, manufacturing and order bullwhips that
BD VOD VDD VSD VDD VM
D
VSD are specific to a given product and/or customer and/or supplier
VO VM BS BM BOD
D D D D and to measure them using the framework shown in Figure 3.
Consider a single product of PF (e.g. boxes of angel food
Note that the inflows to any firm (in this case, to the focal firm cake mix). The product is sold to multiple customers (in this
at Stage 5 in Figure 2) are the result of shipments received case, distributors), including Distributor D. Starting on the far
from the upstream supplier(s). The supplier(s) are, in turn, left of Figure 3, we denote the CV in angel food cake orders
responding to the orders placed by the focal firm (i.e. the placed by Distributor D by VOD (Stage 1 in the upper left of
orders they received). If there is only one upstream supplier, Figure 3) and denote the inflows of boxes of angel food cake
then VOF VUD. However, if there are multiple suppliers, then to D by VID (Stage 2). We plot these orders and inflows in the
the variability in the inflows is some aggregation of the left frame of Figure 4 and report their mean and standard
shipments of the multiple suppliers. We denote the deviation in Table II. We denote PFs shipment bullwhip that
aggregation of inflows (subscript I ) at the focal firm is specific to distributor D by BSF, D. As PFs shipments to D
(superscript F) by VIF and define the focal firms inflow become Ds inflows, we calculate this shipment bullwhip as
bullwhip as BIF VIF VOF. Note that the inflow bullwhip is BSF, D VID VOD. In Figure 4, the shipment bullwhip specific
not one of the three intra-firm bullwhips a firm has no to angel food cake and specific to D is BSF, D 0.07.
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(direct) control over the inflow bullwhip because it is Continuing with our angel food cake example, PF
determined by the shipments of the supplier firms? aggregates orders from D with those from other customers
Nevertheless, a firm may still want to track its inflow bullwhip to create its aggregate demand for angel food cake, with a
in preparation for discussions with suppliers. For more detail, CV of VFD (Stage 3 in Figure 3). Similarly, PF aggregates
see Section 4. shipments of angel food cake to D with shipments to other
This decomposition framework allows managers to pinpoint distributors to create its aggregate shipments of angel food
where the bullwhip is created within their own firm and cakes, with a CV of VSF (Stage 4 in Figure 3). We show
between firms. Specifically, by looking at each firms three these aggregate order and shipment streams in the middle
component bullwhips, BSF, BM F
and BOF, a manager can identify frame of Figure 4. In this specific case, Fs shipment
whether the amplification (or smoothing) occurs in shipping bullwhip aggregated across all customers, BSF 0.06, is
and/or manufacturing and/or ordering within each firm. not too different from Fs shipment bullwhip specific to
Absent the measurement and monitoring of these component Distributor D, BSF, D 0.07.
bullwhips, managers do not know exactly where bullwhips PF manufactures angel food cake in batches. It does not
exist and are thus limited in their ability to mitigate them. manufacture a batch in direct response to every customers
Referring back to Figure 1, we find that PFs shipment (distributors) order but rather schedules its production in
bullwhip is BSF 0.25 (the negative sign confirms response to the aggregation of orders for angel food cake from
smoothing). The firms manufacturing bullwhip is BM F
all distributors. Thus, it is not meaningful to try to plot a
0.22 (again, indicating smoothing), and its order bullwhip is manufacturing flow stream for angel food cake that is specific
BOF 4.11 (i.e. amplification). By decomposing the bullwhip to Distributor D. Similarly, it is not meaningful to calculate
into its three intra-firm bullwhips, PF now knows where to this specific manufacturing bullwhip. Instead, the right frame
start in reducing the bullwhip. In this case, the order bullwhip of Figure 4 shows the manufacturing flow stream for all angel
is the most obvious place to start taking action. This is not to food cake production (with a coefficient of variation of VmF;
claim that interactions with downstream customers and Stage 5 in Figure 3) compared to the shipment flow stream.
upstream suppliers do not merit additional attention (see With an observed BmF equal to 0.21, an amplification in
Section 4 for more detail) but merely suggests prioritizing manufacturing exists that seems attributable to the batch
efforts based on the magnitude of the component bullwhips. production policy.
PF aggregates production volumes for angel food cake with
volumes of other sponge cakes. We create PFs
4. Measure intra-specific bullwhips (Product, aggregate coefficient of variation VM F
(see Stage 6 in Figure 3).
customer and/or supplier-specific) F
Here, we use a capital M in VM to distinguish the number for
Figures 1 and 2 represent all information and material all sponge cakes from the number applicable to angel food
F
outflows from a firm and all information and material inflows cake alone. Comparing this coefficient of variation VM with
into that firm. However, the customer of a focal firm, for the coefficient of variation for the aggregate of all sponge cake
example, may not really care about the entire set of bullwhip shipments, we find a manufacturing bullwhip (smoothing)
measures associated with the focal firm. Instead, the customer of 0.15. In other words, while the production of angel food
may only care about the bullwhips specific to its orders (i.e. cake results in a bullwhip of 0.21 because of batch
the focal firms shipments to that specific customer). Similarly, manufacturing, the pooling of production across all types of
a supplier may focus on the variability in orders it receives sponge cakes (each of which is produced in batches) results in,
from the focal firm rather than care about the variability in all the aggregate, a negative bullwhip. Furthermore, the
the focal firms orders. And, within an organization, the pooling of production of sponge cakes with other types of
primary interest of a production-line manager may be the cakes results in even more smoothing, as evidenced by a
bullwhip(s) associated with a specific production line rather bullwhip (smoothing) of 0.22 (see the middle frame of
than the agglomerated manufacturing bullwhip. Thus, Figure 1).

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Figure 3 Disaggregating data into bullwhips specific to a product and/or customer and/or supplier
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Figure 4 Shipment bullwhip specific to angel food cake and only Distributor D (left) and to angel food cake (all distributors, middle) and the
manufacturing bullwhip specific to angel food (right)
10 50 50
Dist D, Angel food. All dist., Angel food. All dist., Angel food.
Shipment bullwhip: Shipment bullwhip: Manufacturing bullwhip:
8 40 40
Distributor Ds orders to mfg.
Mfgs production
Shipments from mfg. Distributors orders to mfg.
to distributor D Shipments from mfg.
6 30 30
Shipments from mfg. to distributors
Volume

Volume

Volume

to distributors

4 20 20

2 10 10

0 0 0
Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014

Table II Flow stream volumes as plotted in Figure 4 (thousands) ingredient (ingredient S) in its angel food cake and in
Shipments Shipments all sponge cakes. It does not place an order for the special
from from ingredient in direct response to every manufacturing batch
Distributor manufacturer Distributors manufacturer Manufacturer of angel food cake. Instead, it places orders in response to
D orders to distributor orders to all production
the aggregation of production for all sponge cakes. Thus, it
Mean 1.62 1.62 6.01 5.97 8.60 is not meaningful to plot an order flow stream that applies
SD 0.996 0.887 3.78 3.40 6.70 to orders placed to suppliers for ingredient S as used in
angel food cake specifically. Similarly, it is not meaningful
to calculate this specific order bullwhip. Instead, we
Note that each intra-specific bullwhip measure has to identify calculate the CV for the order flow stream for ingredient S
to what it is specific. For example, in the left frame of Figure as used in all sponge cakes, VOF (see Stage 7 in Figure 3) and
4, we plotted the intra-specific shipment bullwhip as it applies compare it to the CV of the manufacturing flow stream, VM F
,
to Distributor D and angel food cake; in the middle frame, we finding amplification in ordering of BO 2.00. The focal
F

plotted the intra-specific shipment bullwhip as it applies to all firm creates a substantial amplification in ordering of
Distributors and (all) angel food cake; and in the right frame, ingredient S.
we plotted the intra-specific manufacturing bullwhip as it Note that not all conceivable intra-specific bullwhips are
applies to all angel food cake. Note that there is no meaningful or necessary. For example, say the manufacturer
distributor-specific manufacturing bullwhip that applies to ships angel food cake to multiple distributors, including
angel food cake because production serves all distributors, not Distributor D. Further, say the manufacturer holds only one
specific distributors. inventory pool of angel food cake. While one might imagine
Similarly, we calculate intra-specific bullwhips related to calculating a manufacturing bullwhip specific to product shipped
upstream suppliers. For example, PF uses a special to Distributor D, we do not see this number as particularly

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meaningful or necessary because the manufacturer decides how flows through each step may help identify additional
much to produce based on aggregate shipments as opposed to improvement opportunities.
shipments specifically to Distributor D.

5. Select the appropriate time aggregation


4.1 Discuss customer- and supplier-specific bullwhips interval and interval end-points
with supply chain partners
The data we collected from PF represent transactions aggregated
When PF talks to an individual distributor (customer) or
over a calendar month. We therefore calculate the CV for each
supplier, the two firms can only work on reducing the bullwhip
month observed. We explore herein how aggregating
between themselves they cannot (independently) address the
observations over time distorts our understanding of the
bullwhips involving other firms. Thus, PF may want to share
bullwhip. Moreover, we show how the end-point of a time
intra-specific bullwhips with each supply chain partner. For
interval may influence conventional and component bullwhip
example, say PF is preparing for discussions with Distributor D.
measures.
PF might look at the flow streams and shipment bullwhip
The bullwhip aggregation interval is loosely synonymous with
measures specific to each product (such as angel food cake) and
an accounting period although the two need not coincide. For
for each product group (such as sponge cakes), and for all
example, if we aggregate data on a quarterly basis for purposes of
products in aggregate. In each case, PF found the shipment
measuring the bullwhip, then the data could be aggregated over
bullwhip to be negative, indicating a smoothing of shipments
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a bullwhip-quarter defined by the months of February


relative to orders.
MarchApril (with an end-of-bullwhip-quarter date of April 30).
While shipment smoothing is presumably a good thing, PF
This bullwhip-quarter aggregation can differ from the
found the order flow stream from Distributor D to be extremely
accounting-quarter which aggregates the financial data over
variable compared to Ds flow streams of shipments to end-users
the months of JanuaryFebruaryMarch to create a quarterly
which D shared with PF. Recognizing this discrepancy, PF
income statement with an end-of-accounting-quarter date of
examined its own practices to determine the root cause and
March 31.
discovered its very own routine price increases drove these order
Most academic research on the bullwhip effect uses
patterns. The distributor was stocking up on product just before
quarterly data because of readily available data from public
the price increase (i.e. forward buying). This observation
sources (Bray and Mendelson, 2012). In contrast, we suggest
provided the impetus for a change in pricing structure between
firms use more granular data. Herein, we use monthly
the two parties. PF held similar discussions with other
bullwhip measures to match the monthly review cycle of PF.
distributors and revamped its pricing structure across the board.
Shipment bullwhips could be measured using weekly data if
Similarly, supplier-specific bullwhip information at various levels
shipments follow a weekly schedule. If a warehouse is
of disaggregation also suggested that PF could benefit from
restocked daily, then perhaps daily aggregation is appropriate.
working with its suppliers to reduce the order bullwhip.
Fransoo and Wouters (2000) offer insight on how to manage
time (and product) aggregation issues.
4.2 Discuss product-specific bullwhips with sales, An examination of monthly sales data at 45 Walmart stores
production and purchasing managers collected by Kaggle (2015) illustrates the CV in the quarterly
Shipment bullwhips are of natural interest to sales representatives sales series differs depending on whether the quarter ends in
for use in their discussions with customers and order bullwhips December, January or February. Specifically, when the quarter
are of natural interest to purchasing agents in their discussion ends in December, the CV is about 50 per cent higher (0.075)
with suppliers. Other material flows (and bullwhip measures) than alternative quarter endings (e.g. 0.046 for January and
may only be of internal interest. In particular, the manufacturing 0.051 for February). As December is the highest sales month and
bullwhips are most likely to fall into this category. For example, January the lowest, the CV calculated with a quarter end of
the right frame of Figure 4 shows a manufacturing bullwhip for January or February aggregates the peak and valley into the same
angel food cake, but when all products are taken into quarter. This, in turn, artificially dampens the variation. We
consideration (the middle frame of Figure 1), manufacturing suggest avoiding aggregations that artificially dampen the
smoothing prevails. Batch manufacturing may explain this bullwhip.
discrepancy in bullwhip measures. In some months, PF produces
no angel food cake but instead produces another type of cake.
Conversely, in the months where PF produces angel food cake, 6. Discussion and summary
there is no production of another type of cake. Thus, the Our work suggests that a firm can benefit from breaking its
bullwhip created in manufacturing for angel food cake may not inter-firm bullwhip measure into three intra-firm (component)
be detrimental but simply a function of production choices. At bullwhips and, even further, into intra-specific bullwhips. These
the same time, if PF could determine how best to reduce its batch measures are of course inter-related a firm will not ship absent
sizes in a cost effective manner, given the steady demand for downstream customer orders; a firm cannot ship if it does not
angel food cake, then PF could reduce its average inventory level. have the goods available to ship; a firm cannot manufacture the
Our analysis assumes the existence of only one manufacturing goods if it has not received the raw materials from its upstream
step. In the presence of multiple manufacturing steps, product supplier; the upstream supplier will not ship the raw materials if
flows and bullwhip measures can be tracked at each step. For the firm has failed to place an order; and so forth. Thus, firms
example, PF packaging is a separate step and inventories can cannot (and should not) view these bullwhips as entirely
build up in front of the packaging process. Tracking of material independent. Nevertheless, by measuring these distinct

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Ming Jin, Nicole DeHoratius and Glen Schmidt Volume 22 Number 4 2017 297304

bullwhips, managers can get a better picture of where the firm their own firm as well as that of their distributors. To calculate
(and the supply chain) should focus improvement efforts. these cost savings, we compared the actual inventories with
Based on the analysis of data from our sample firm, PF, we those required for an order-up-to model with no bullwhip.
suggest applying the following principles to minimize the Overall, we estimated the PF supply chain had the potential
bullwhip effect: to reduce delivered product cost by about 15 per cent if it
Rigorously track the three component bullwhips, namely, could eliminate the bullwhip and thereby reduce
shipment, manufacturing and order bullwhips: Few managers inventory-holding costs for the product discussed herein.
break down their flow streams in the manner we suggest. Estimates for other products in our study exhibited more modest
However, managers need to know exactly where but still substantial savings in delivered product cost of 2 to 3 per
amplification (or smoothing) exists within their firm (and cent. Moreover, the firm identified opportunities to modify its
by implication, in their supply chain). If it is not measured, pricing practices that induced substantial bullwhip into its supply
it is not managed. chain. We foresee the potential for similar successes at other
Track intra-specific product flows and bullwhips relevant for firms as they pay closer attention to the issues identified herein.
discussions with individual customers, internal managers and
suppliers: Intra-firm bullwhips can only be managed through
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Want to reduce the bullwhip? Supply Chain Management: An International Journal
Ming Jin, Nicole DeHoratius and Glen Schmidt Volume 22 Number 4 2017 297304

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Operational Research, Vol. 147 No. 3, pp. 567-590. About the authors
Duan, Y., Yao, Y. and Huo, J. (2015), Bullwhip effect under
substitute products, Journal of Operations Management, Ming Jins research interests lie primarily in empirical
Vol. 36, pp. 75-89. research in operations management. In his research, he draws
Fair, R. (1989), The production smoothing model is alive upon methods from areas such as econometrics, optimization
and well, Journal of Monetary Economics, Vol. 24 No. 3, and statistics. His current research has focused on bullwhip
pp. 353-370. effect and trade promotion, exploring potential bias in
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Forrester, J. (1961), Industrial Dynamics, MIT Press and John aggregated bullwhip measurement, various driving factors of
Wiley & Sons, New York, NY. the bullwhip effect and effectiveness of trade promotions for
Fransoo, J.C. and Wouters, M.J.F. (2000), Measuring the healthcare products in a multi-echelon supply chain. He
bullwhip effect in the supply chain, Supply Chain received his PhD from the University of Utah in 2016.
Management: An International Journal, Vol. 5 No. 2, pp. 78-89.
Ghali, M. (1987), Seasonality, aggregation and the testing of Nicole DeHoratius received her DBA from Harvard Business
the production-smoothing hypothesis, American Economic School, her MSc from the University of Sussex as a Rotary
Review, Vol. 77, pp. 464-469. Ambassadorial Scholar and her AB, magna cum laude, from
Gilbert, K. (2005), An ARIMA supply chain model, Harvard College. She joined Chicago Booth in 2001 and, since
Management Science, Vol. 51 No. 2, pp. 305-310. then, has taught operations management, service operations and
Jin, M., DeHoratius, N. and Schmidt, G. (2016), Inter and supply chain management to executives in programs and
intra-firm bullwhips in a multi-echelon pharmaceutical companies around the globe. For exemplifying the characteristics
supply chain, Working paper, University of Utah. students most value in their professors, DeHoratius earned the
Kaggle (2015), available at: www.kaggle.com/c/walmart- 2015 and 2016 Rotman School of Management Teaching
recruiting-store-sales-forecasting/data (accessed 8 July 2015). Award. The Manufacturing & Service Operations Management
Kahn, J.A. (1987), Inventories and the volatility of (M&SOM) Society awarded her its Best Paper Award for the
production, American Economic Review, Vol. 77 No. 4, article Retail Inventory Management When Records are
pp. 667-679. Inaccurate and she is the recent recipient of the Ralph Gomory
Lai, R. (2005), Bullwhip Effect in a Spanish shop, Working Best Industry Studies Paper Award for The Impact of Supplier
Paper, Harvard Business School. Inventory Service Level on Retailer Demand.
Lee, H.L., Padmanabhan, V. and Whang, S. (1997),
Information distortion in a supply chain: the bullwhip Glen Schmidt is the David Eccles Professor of Business at
effect, Management Science, Vol. 43 No. 4, pp. 546-558. the University of Utah. Following 15 years of industry
Li, J., Sikora, R., Shaw, M.J. and Tan, G.W. (2006), A strategic experience, he received his PhD from Stanford University in
analysis of inter organizational information sharing, Decision Operations, Information and Technology. His research and
Support Systems, Vol. 42 No. 1, pp. 251-266. teaching have been recognized by Professional Societies and
Miron, J. and Zeldes, S. (1988), Seasonality, cost shocks, Schools in various ways, for example, in best paper
and the production smoothing model of inventories, competitions at Manufacturing and Service Operations
Econometrica, Vol. 56, pp. 877-908. Management, at Production and Operations Management, at the
Rossana, R. (1998), Structural instability and the production Journal of Product Innovation Management, at the Decision
smoothing model of inventories, Journal of Business and Sciences Journal of Innovative Education, at the INFORMS
Economic Statistics, Vol. 16, pp. 206-215. student paper competition and at INFORM-ED. Glen
Singer, M., Donoso, P. and Konstantinidis, G. (2009), Who Schmidt is the corresponding author and can be contacted at:
wants to break the hockey-stick sales pattern in the supply glen.schmidt@utah.edu

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