BULLWHIP EFFECT – CAUSES &

COUNTERMEASURES
Presentation By
SHLOK AGRAWAL
SHIVANSH PANDEY
ARJUN KHANNA
SEHAJ SOOD
KUNAL KUMAR MALPANI
 WHAT IS BULLWHIP EFFECT?
It is a phenomenon describing how small consumer demand/order fluctuations @ retail
stage can cause progressively larger demand/order fluctuations @ distributor,
manufacturer & supplier stages.
The bullwhip effect often occurs when retailers become highly reactive to demand, and in
turn, amplify expectations around it, which causes a domino effect along the supply chain.
DEMAND CHANGES ORDER CHANGES ORDER CHANGES ORDER CHANGES

CUSTOMER RETAILER DISTRIBUTOR MANUFATURER SUPPLIER

Example of the bullwhip effect
• Actual demand = 8 units,
• Retailer order = 10 units (an extra 2 units are to
ensure they don’t run out of floor stock)
• Distributor order = 20 units (allowing them to
buy in bulk so they have enough stock to
guarantee timely shipment of goods to the
retailer)
• Manufacturer production = 40 units (to ensure
economies of scale in production to meet
demand.) 
• Now 40 units have been produced for a demand
of only 8 units, meaning the retailer will have to
increase demand by dropping prices or finding
more customers by marketing and advertising.
INFORMATION PROCESSING CAUSES CAUSESOFBULLWHIPEFFECT
PRICING CAUSES
● Forecasting based on past order. ● Price fluctuations- Discounts & Promotions.

OPERATIONAL CAUSES SUPPLY CAUSES

● Long lead time ● Shortage of supply
● Order Batching ● Multi level
FORECASTING WITH PAST
ORDER DATA
Consumer Demand increases by 5% randomly

Retailer sees growth-

Increases sales forecast
Say- 100 units/week.

Checks inventory
Say- 20 units too low

Order on distributor
Eg- 120 units
An increase of 25%

Distributor uses this order data to update their forecast

 PRICE FLUCTUATIONS
● Due to inflationary factors

● Quantity discounts, or sales tend to encourage customers to buy larger quantities than they
require.

● Promotions can also be an incentive for buying more than the demand requirements.

● This yields temporary benefits for one player in the supply chain, but creates the
Bullwhip Effect and increased costs upstream.

● For example, the annual holiday, businesses will be promotional, consumers will postpone
some of the pre-holiday demand, will also be part of the demand ahead of time, in order to
focus on holiday spending, so that changes in demand will be very large, causing Bullwhip
effect.
 BULK ORDER & LEAD TIME
• Each enterprise will order upstream
• Frequent order will increase workload & cost to supplier
• To reduce cost of ordering vendors tends to increase order & this lead to Bullwhip effect

Prediction Error

10%

Season
15 Weeks
Begins
Order Lead time
Order of information goes through : -

CUSTOMER

RETAILERS

WHOLESELLERS

MANUFACTURERS

SUPPLIERS
 Short of Supply
• During introduction of new product manufacturer gives a quota to each retailer and give
products accordingly
• Retailers may raise false order with manufacturer & manufacturer re-invest to expand
production
• Unfortunately, when real demand occur retailers revoke there orders & manufacturer have to
sell products at low price
 COUNTERING BULLWHIP EFFECT

 Collaborate with customers and suppliers

Companies work with customers to understand their plans and forecasts

They can build promotions and seasonality into the forecast

Provide more insight to their suppliers to help prevent the buildup of unnecessary inventory

Advanced Information Technology

Elimination of the intermediaries by company's internal internet

Demand information available to all the participants of the supply chain

Imparts flexibility to the system and increases the response speed

 COUNTERING BULLWHIP EFFECT

Improving operational performance

◦ Reducing lead time
◦ Reducing lot sizes

 Example

Wal-Mart places smaller - more frequent orders

& expects suppliers to supply small lots within a few days

THANK YOU