The Bullwhip

effect
Presentation by –
Vinamar Maheshwari
401888001
What is bullwhip effect
The bullwhip effect is a distribution channel phenomenon in which
demand forecasts yield supply chain inefficiencies. It refers to increasing
swings in inventory in response to shifts in consumer demand as one
moves further up the supply chain.
Who is affected ?
• Nearly all industries are affected.
• Firms that experience large variations in demand are at risk.
• Firms that depend on suppliers upstream and retailers downstream are
at risk.
Causes of bullwhip effect
• Demand forecast updating
• Order batching
• Price fluctuation
• Un-forecasted sales promotion
• Customers turning back sales orders.
Effects of bullwhip effect
• Excess inventories
• Unnecessary cost
• Stock outs
• Increased wastages
• Changes in buying patterns
Ways to counteract bullwhip effect
• Share information
• Break order batches
• Stabilize price
• Eliminate shortage situation
• Improve communication along supply chain
• Improve sources of forecast data
Share information
• Lack of visibility tends to increase in costs
• Encourage information sharing throughout the supply chain.
• Work with suppliers on releasing lead times and improving on time
delivery.
Break order batches
• Use EDI ( electronic data interchange ) to reduce the cost of placing
orders.
• Place orders more frequently.
• Use third party logistics company to handle shipping to counter high
transportation costs.
Stabilize price
• Manufacturers reduce the frequency and level of wholesale price
discounting to keep customers from stockpiling.
• Work to develop consistent pricing of products to avoid demand
fluctuations from the sale of inexpensive products.
Eliminate shortage situations
• Suppliers should allocate products based on past sales number.
• Eliminate return policies so retailers cant cancel orders.
Improve communication along supply chain
• Retailers notifying firms of sale promotions will help clarify demand
signals from consumers.
• Improved communication system will improve demand forecasts in
supply chain.
Improve sources of forecast
• Develop a flexible process
• Use a consistent model
• Focus on exceptions