The Bullwhip-Effect – A Threat of Inventory Control

In general forecasting the demand and then concluding the right operations in the purchasing- and warehousing stage seems to be a feasible task. But when disorganization a lack of communication and misinterpretation take place between the different stages of a supply-chain, the Bullwhip-effect will destroy all planning’s.

What is the Bullwhip-Effect?

The Bullwhip-effect can be explained as an increasing variability of demand/orders when moving upstream the supply chain (see Figure):

Bullwhip-Effect

Consequently the interpretation of the given demand data from stage to stage in the supply chain gets harder to interpret. Will the next order higher or lower? Do I need more inventory or do I have to reduce stock in my warehouse?

Why does it occur?

Behavioral Causes

  • Misinterpretation of large/low demands of the supply-chain level before hand
  • Panic reactions after unmet demand

Organizational Causes

  • No Communication between the different stages
  • Disorganization of the whole supply-chain

Operational Causes

  • Lead-Time too high
  • Wrong order batching (only weekly/monthly instead of steady)
  • Distortion of steady demand because of price variation

How to solve this Bull-Whip Problem

  • Reduction of uncertainty through strategic alliances in the supply-chain (Vendor Managed Inventory)

Sources:

http://www.aalhysterforklifts.com.au/index.php/about/blog-post/what_is_the_bullwhip_effect_understanding_the_concept_definition

https://www.entrepreneur.com/article/232953

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