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To cite this document: Peter McCullen, Denis Towill, (2002),"Diagnosis and reduction of bullwhip in supply chains", Supply Chain
Management: An International Journal, Vol. 7 Iss: 3 pp. 164 - 179
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http://dx.doi.org/10.1108/13598540210436612
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Research paper
Diagnosis and
reduction of bullwhip in
supply chains
Peter McCullen and
Denis Towill
The authors
Peter McCullen is Senior Lecturer, Supply Chain
Information and Integration Research Group (SCI2),
Brighton Business School, University of Brighton,
Brighton, UK.
Denis Towill is Research Professor, Logistics Systems
Dynamics Group (LSDG), Cardiff Business School,
Cardiff University, Cardiff, UK.
Keywords
Supply-chain management, Materials management,
Flow production
Abstract
``Bullwhip'' describes the general tendency for small
changes in end-customer demand to be amplified within a
production-distribution system. A 10 per cent increase in
sales to end-customers can precipitate a 40 per cent
upswing in production and subsequent downswing (as
excess stocks are depleted) within a three-echelon supply
chain. It is shown how proven material flow control
principles significantly reduce bullwhip in a global supply
chain. The evidence demonstrates that a methodology,
which has evolved over several decades, provides a
suitable framework for effective change. Bullwhip is not a
new problem; it is a new name coined to describe a very
well-known problem. Some observed barriers to change
are briefly reviewed.
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Supply Chain Management: An International Journal
Volume 7 . Number 3 . 2002 . pp. 164179
# MCB UP Limited . ISSN 1359-8546
DOI 10.1108/13598540210436612
Introduction
Bullwhip, as recently coined by Lee et al.
(1997), is still an extensive and expensive
problem in real world supply chains. But
under its old guise of demand amplification it
was a phenomenon well documented first, in
the USA by Forrester (1961) and, second, in
the UK by Burbidge (1984). Possible
solutions for reducing bullwhip were also
proposed by Forrester (based on a
DYNAMO simulation model) and by
Burbidge based on his shopfloor observations,
supplemented by industrial engineering
analysis. Since those early days the Forrester
and Burbidge ideas have been greatly
extended and further refined. They have also
been successfully applied in a number of
supply chain scenarios, with a significant
reduction observed in the bullwhip effect. So
it is clear that proven solutions to bullwhip are
available for those businesses wishing to
reduce costs and to increase customer service
levels.
Yet 40 years on, the phenomenon can be
observed in many internal, national and
international supply chains. Documented
examples include:
.
automotive products (Edgehill et al.,
1988);
.
machine tools (Fine, 1998);
.
retail products (Holmstrom, 1997);
.
packaged meals (Fransoo and Wouters,
2000);
.
paper making (Hameri, 1996); and
.
electronic products (Van Aken, 1978).
Why is this? Are the solutions not well enough
known? Are they difficult to understand? Are
they difficult to implement, especially in the
global economy? Or are they difficult to tie in
with business strategy? Meanwhile bullwhip
continues to manifest itself and is very
unforgiving, involving both successive
overstocking and under-stocking or requiring
increased capacity followed by underutilisation. Frustratingly, it often results in
concurrent poor performance in both areas.
These problems are bad enough where supply
chain actors are in close proximity, but the
problems can multiply, as supply chains are
extended across the globe. Some idea of the
present situation can be gleaned from the top
ten bullwhip cliches shown in Table I, which
has been compiled on the basis of our
experience. It seems that, despite widespread
knowledge of the bullwhip phenomenon,
164
Description
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
Bullwhip
The
The
The
The
The
The
The
The
The
The
ignorance cliche
arrogance cliche
negligence cliche
indifference cliche
transference cliche
acceptance cliche
despondence cliche
decadence cliche
intolerance cliche
avoidance cliche
Types of bullwhip
The bullwhip effect, as defined by Lee et al.
(1997), is a phenomenon whereby:
Information transferred in the form of orders
tends to be distorted and can misguide upstream
members in their inventory and production
decisions . . . the variance of [replenishment]
orders may be larger than that of sales [to end
customers], and the distortion tends to increase
as one moves upstream . . .
165
(1)
166
p
LT
167
Bullwhip diagnostics
For managers who wish to minimise
unnecessary and costly variation in their
supply chain, it is important to understand
the specific causes of bullwhip. Forrester
effects can broadly be identified as continuous
changes in the echelon time-series for:
demand, orders, shipments, production and
inventory. Forrester effects generally exhibit
long-wavelength periodicity, which can
sometimes be related to the time-delays in the
feedback paths used to correct inventory
discrepancies. For example, a supply chain
driven by a monthly planning cycle with a
cumulative production-distribution lead-time
of two months- has a two-to three-month
time-delay in its feedback path for correcting
168
169
170
Table II Percentage improvements in profitability estimated for three bullwhip reduction scenarios
Supply chain type:
Bullwhip type:
Uncapacitated
Burbidge
Forrester
0.6
1
1.6
10.5
8.4
20.1
Capacitated
Forrester
Penalty
Forrester
Capacitated
with penalty
13.4
16.1
31.7
8.7
11
21
22.1
27.1
52.7
.
.
.
.
.
.
overtime;
shift premiums;
quality variances;
additional transportation;
handling; and
storage charges.
very sensitive to stock-turns for these fastmoving consumer goods. Hence everyone has
gained from Campbell's action to improve
supply chain dynamics, because both
production and distribution costs have been
reduced as a result of the smoother material
flow achieved throughout the supply chain
(Fisher, 1997). Later in the paper we present
four generic material flow control principles,
visible within Campbell's re-engineering
programme, which can be used to eliminate
bullwhip and to improve the performance of
virtually any supply chain.
Table III Typical bullwhip results from playing the beer game
Supply chain
echelon
Multiplicative
bullwhip factor
ex. marketplace
Peak stock
Inventories
Peak backlog
Swing stock
Marketplace
Retailer
Wholesaler
Distributor
Brewery
1.0
3.5
4.5
11.5
14.00
20
55
20
75
10
30
50
25
30
85
70
100
172
Table IV Demand amplifications within a real-world real-world European retail supply chain
Interface across
which demand
amplification occurs
Shop orders/purchases
Wholesaler/shop orders
Factory orders/wholesaler
Deliveries from factory/
factory orders
2.60
2.88
0.72
3.14
3.05
2.39
1.67
1.25
173
174
175
Supply chain
improvement action
176
Echelon
elimination
Figure 7 The three-dimensional nature of bullwhip in the global supply chain: a potentially major source of
instability in international operations
177
Conclusions
References
178
Further reading
Stalk, G.H. and Hout, T.M. (1990), Competing against
Time: How Time-based Competition Is Reshaping
Global Markets, Free Press, New York, NY.
179