SUPPLY

CHAIN
MANAGEMENT

Copyright Macmillan Publishers India Ltd.

BULL WHIP EFFECT

CASE STUDY

CUSTOMER ORDER TO
EQUIPMENT DELIVERY:
BEST PRACTICES AT XEROX

Bullwhip Effect
Bullwhip effect refers to the tendency for
fluctuation in demand to increase as they move
up the supply chain resulting excessive inventory
holding across network.

Bullwhip Effect

Bullwhip Effect
Procter & Gamble (P&G) first noticed the
phenomenon in the US when the company
examined order patterns for its diaper
brand Pampers

Factors contributing
Bullwhip Effect
The causes of the bullwhip effect that distorts
information as it is transmitted up the chain
are:
Demand forecast updating
Order batching
Price fluctuation
Rationing and shortage gaming
Lead time

Demand forecast
Demand Forecasting: Traditionally demand
is forecasted at each level in the supply
chain based on the preceding levels
projections.
This lead to the aggravation of
Demand uncertainties at the highest level.

Lead Time
More is the lead time more is the
fluctuation.
As lead time increases, safety stocks are
increased, and order quantities are increased.
More variability.

Batch Ordering
The traditional practice of Batch ordering
by the retailers also fuels the Bullwhip
effect.
Batch ordering is generally done to avail
transportation discounts, or reducing
ordering cost, or sometimes for incentives

Price fluctuations
If prices to retailers fluctuate, then they may try to stock up when prices
are lower, again leading to variability.

Inflated orders
When retailers expect that a product will be in
short supply, they will tend to inflate orders to
insure that they will have ample supply to
meet customer demand. When the shortage
period comes to an end, the retailer goes back
to the smaller orders, thus causing more
variability.

Alleviating Bullwhip effect

Centralizing Demand Forecasting

Reducing Price Variability
Strategic Partnership
Reducing Lead Time

Centralizing Demand
Forecasting
It is to provide each stage of supply chain
with complete information about the
customer demand.

Reducing Price
Variability
Variability in the customers demand can
be reduced by offering consistent prices
throughout.
unnecessary price promotions can
effect the demand pattern of the customers

Strategic
Partnership
Strategic partnering (SP) is when two or more firms that have
complementary products or services join such that each may
realize a strategic benefit. Types of strategic partnering may

be :
Quick response
Vendor managed inventory (VMI)