 Bullwhip effect is a phenomenon in Forecast

driven distribution channels

 It is the increase in the variability of order as it

moves from the Customer to the Manufacturer

In a supply chain plagued with Bullwhip effect, the
distortion in information is escalated as it moves up in the
chain

Some symptoms of Bullwhip are:

• Excessive inventory
• Poor product forecast
• Insufficient capacities
• Long backlogs
• Uncertain Product planning
 DEMAND
FORECASTING
UPDATING

RATIONING
AND ORDER
SHORTAG BATCHING
E GAINING BULLWH
IP
EFFECT

PRICE
FLUCTUATIO
N
 Based on the order history
 Amount of safety stock contributes
bullwhip effect
 Lead time longer fluctuation more
significant
 Two types
• Periodic Ordering
 Inventory systems based on order cycles
 Reduces order, billing and shipment cost
 amplifies variabilty and contributes bullwhip
• Push
 Company experiences regular surges in demand
 All customers orders should be spread

out evenly throughout a week or month

 Forward buy – items were bought in
advance of requirements
 Forward buying has a negative effect
 Forward buy a good idea-If cost of holding
inventory is less than the price differnetial
 “the Dumbest marketing ploy ever “ as
price fluctuation is set by marketers
themselves
 PRODUCT DEMAND EXCEEDS
SUPPLY

RATIONS PRODUCT TO
CUSTOMERS

CUSTOMER EXAGGERATES THEIR REAL

NEEDS

WHEN DEMAND COOLS,ORDERS DISAPPEAR & CANCELLATION

STARTS

EXCESS INVENTORY AND UNNECESSARY CAPACITY INCREASE

 Forecasting at each level of supply chain.
 Processing the demand input from the
immediate downstream member.
 The downstream data should be made
available to the upstream site – VMI/CRP
 Companies using VMI are P&G, Nestle, HP
etc.
 Multiple organizations in a supply chain
should use the same forecasting method.
 Bypassing the downstream site like in case of
Dell.
 Just-in-time replenishment.
 Variable, non-periodic schedule from the
downstream.
 Total Cost = Ordering Cost + Carrying Cost

 Use of Electronic Data Interchange(EDI).

 Use of full-truckloads – Mixed-SKU(P&G),
Composite Distribution(eg. TESCO,
Sainsbury), third party logistics.
 Reduce the frequency and level of
wholesale price discounting.
 No exaggeration of orders.
THANK YOU