Explain Bullwhip Effect

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written 7.3 years ago by

teamques10 ★ 64k

The bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain inefficiencies.
It refers to increasing swings in inventory in response to shifts in customer demand as you move further up the supply chain.
The concept first appeared in Jay Forrester's Industrial Dynamics (1961) and thus it is also known as the Forrester effect.
The bullwhip effect was named for the way the amplitude of a whip increases down its length. The further from the originating signal, the greater the distortion of the wave pattern. In a similar manner, forecast accuracy decreases as move upstream along the supply chain.
Fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers.
Distorts demand information within the supply chain, where different stages have very different estimates of what demand looks like
Results in a loss of supply chain coordination.
Exists, in part, due to the retailer’s need to estimate the mean and variance of demand.
The increase in variability is an increasing function of the lead time.
The more complicated the demand models and the forecasting techniques, the greater the increase.
Centralized demand information can reduce the bullwhip effect, but will not eliminate it.
For example, many consumer goods have fairly consistent consumption at retail. But this signal becomes more chaotic and unpredictable as you move away from consumer purchasing behaviour.

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