Bullwhip effect in supplychain - Essay Example

In order to identify the causes of the bullwhip effect and to determine what measures may be adopted to tame the bullwhip effect we conduct an analysis of secondary data found in the literature. By conducting this study we can utilize a two-phase supply chain model and determine that synergy and trust are necessary for coordinated forecasting, consistent lead times and adequate information for appropriately estimating demand variance and thus taming the bullwhip effect. CHAPTER-1 1.1 Introduction 1.1.1.

Defining the Bullwhip Effect In companies where demand appears to be capable of accurate prediction, companies may nevertheless incur considerable costs attempting to ensure that production is consistent with demand (Fisher, Hammond, Obermeyer & Raman, 1997). These costs are incurred for ensuring efficient supply chain management. The consequences of inefficient supply chain management are typically referred to as the bullwhip effect (Croson & Dohohue, 2005). A primary contributing factor to inefficient supply chain management has been called the bullwhip effect (Lee, Padmanabhan & Whang, 1997).

According to Lee, Padmanabhan and Whang (2004) the bullwhip effect occurs when “demand variability” amplifies in an “upstream” direction within the supply chain (p. 1887). . The term “bullwhip effect” was initially used by the management of Proctor & Gamble upon observing enhanced distorted information relative to orders as the information went “up the supply chain” (Buchmeister, Pavlinjek, Palcic & Polajnar, 2008, p. 46). Proctor & Gamble evaluated patterns of orders for their most profitable product: Pampers.

Sales recorded at retail outlets indicated fluctuations. Upon a closer examination, Proctor and Gamble noticed that orders made by distributors had a surprising level of variability. Orders to suppliers demonstrated even larger levels of variabilities. Although the consumers who were infants used Pampers steadily, “variabilities” in “demand orders” escalated in an upward trajectory in the supply chain (Lee et. al, 1997, p. 93). Essentially, the phrase, the bullwhip effect generally refers to inefficient management in the supply chain which causes increases in demand variations as information travels in an upward direction in the supply chain.

According to Dolgui and Proth (2010), when demand information is distorted while moving up the supply chain, there are usually three observable effects: “oscillation, amplification and phase-lag” (p. 119). In this regard, oscillation occurs when demand is unstable. Amplification refers to increases in demand variability upstream in the context of the supply chain. Phase-lag occurs when orders reach a peak farther upstream in the context of the supply chain (Dolgui & Proth, 2010). The bullwhip effect will therefore occur in instances where communication within the supply chain is either distorted or late.

Wu and Katok (2006) inform that even where supply chain personnel are highly trained and