The bullwhip effect is a phenomenon in supply chain management where small changes in customer demand lead to large fluctuations in orders placed by retailers and manufacturers. This distortion is caused by factors such as disorganization, lack of communication, and order batching, resulting in excessive inventory and inaccurate product forecasts. To mitigate the bullwhip effect, real-time demand information and information sharing among supply chain partners are essential.

1. BULLWHIP EFFECT
DR. SHAILAJA
B

2. WHAT IS BULLWHIP?
 Bullwhip effect is a phenomenon in forecast
driven distribution channels detected by supply
chain.
 In bullwhip effect order sent to the manufacturer
and supplier create large variance then the sales
to the end customers.

3. BULLWHIP EFFECT

4. WHAT DO YOU MEAN BY
BULLWHIP EFFECT?
 The order that the manufacturer receives is often
much longer than what the actual customer’s
demand is at the point of sale.
 This irregularity or variance in the size of the
orders placed increases as we move up the supply
chain, i.e., from the customer to the retailer to the
distributor, and then the manufacturer.

5. EXAMPLE

6. EXPLANATION
So eventually, 40 units were produced against a
demand of 9 units, and now the inventory will be
pushed to the customer through offers and
discounts and more investment will be made for
the product’s marketing and advertising efforts.

7. EFFECTS OF BULLWHIP
 In a supply chain plagued with bullwhip effect,
the distortion in information is escalated as it
moves up in the chain.
 This variance can interrupt the smoothness of the
supply chain process as each link in the supply
chain will over or underestimate the product
demand i.e., exaggerated fluctuations.

8. CONTRIBUTION TOWARDS BULLWHIP
EFFECT
There are many factors to cause bullwhip effect:
1. DISORGANIZATION: between each supply chain link if it occurs then due to
non uniformity in ordering leads to over or under reaction to the supply
chain beforehand.
2. LACK OF COMMUNICATION: between each link in the supply chain makes
it difficult for the process to run smoothly and therefore order different
quantities.
3. FREE RETURN POLICIES: customers order more demands intentionally to
meet there inventory but cancel in between when supply becomes adequate.
4. ORDER BATCHING: creates variability in the demand as there may be surge
in demand at some stage followed by no demand.

9. SYMPTOMS OF BULLWHIP
Some symptoms of Bullwhip are:
 Excessive Inventory
 Poor product forecast
 Insufficient capacities
 Long backlogs
 Uncertain product planning

11. CAUSES OF BULLWHIP EFFECT

12. EXPLANATION
 DEMAND FORECAST UPDATING: every company in a
supply chain follows product forecasting which is
usually based on the past order history. This helps in
production, scheduling, material requirement
planning, inventory control and capacity planning.
But In this case, the fluctuations are accounted for.
 Also, the lead time of orders varies or fluctuate
drastically in some cases, which might force the buyer
to place bigger sized orders

13. CONTD…
 ORDER BATCHING PRACTICE: larger order sizes
often offer discounts and lower cost advantages to the
buyer, or at times suppliers don’t entertain smaller
order sizes. Hence, companies tend to accumulate the
demand to reach a respectable order size and develop
the practice to order monthly or weekly, which creates
demand variability as the average demand is not
stable across the time-period.

14. CONTD…
 PRICING FLUCTUATIONS & TRADE
PROMOTIONS: Specific period discounts , or cost
fluctuations, can lead the buyers to order in bulk
to avail the discounts which cause demand
variability in the supply chain.

15. CONTD….
 RATIONING AND SHORT GAMING: When product
demand exceeds supply, a manufacturer often
rations its product to customers. For example, the
manufacturer then allocates its products in
proportion to the amount ordered by the different
retailers. Retailers often anticipate on potential
shortages by exaggerating their real needs when
they order. If demand drops later, this will lead to
small orders and cancellations.

16. CONTROLLING MEASURES
 The only way to counter bullwhip effect is to have
the accurate, real-time demand information.
 To achieve that, we need to shift from a forecast-
driven ordering system to measures that allow
information sharing with the supply chain
partners and hence complete visibility of the
actual customer demand.