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    Supply Chain Management The Bullwhip Effect Commerce Essay

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    In recent old ages in the supply concatenation direction theory at that place has been done a batch of research over the phenomenon called the Bullwhip consequence In brief, this negative consequence occurs when ‘the demand order variablenesss in the supply concatenation are amplified as they moved up the supply concatenation ‘ ( Lee et. Al, 1997a ) and can take to such large inefficiencies as lost grosss and hapless client service. Many of the writers in their scientific documents contributed a batch to the development of the subject by depicting the Bullwhip consequence, explicating and measuring its grounds, its deductions and possible ways of its decrease, utilizing higher mathematics ( Chen et. Al, 1999 ; Dejonckheere et. Al, 2001 ; Warburton, 2004 ; Croson & A ; Donohue, 2003 ) and specialized package ( like SISCO ) ( Chatfield et al. , 2004 ) to make simulation theoretical accounts. In our brief overview, nevertheless, we will non see all of these particularised mathematical surveies in item, we will merely seek to concentrate on the more theoretical account of the negative deductions of the Bullwhip consequence, the possible grounds of its being, and on the ways of its decrease. In this regard, we think that among all of the well-thought-of scientists that devoted their attempts to the Bullwhip consequence research, the writers Hau L. Lee, V. Padmanabhan, and Seungjin Whang in their articles “ The Bullwhip Effect in Supply Chains ” ( 1997 ) and “ Information Distortion in a Supply Chain: The Bullwhip consequence ” ( 1997 ) have non merely most deeply described and explained the impression of the phenomenon of the Bullwhip consequence and the grounds of its being, but besides introduced the most valuable and applicable ways of how to decrease its negative effects.

    The essay consists of 3 chief chapters: the first chapter describes the impression and the deductions of the Bullwhip consequence, in the 2nd chapter the grounds for its being are discussed, and the 3rd chapter refers to the ways how to cut down the Bullwhip consequence.

    1. Deductions of the Bullwhip consequence

    There are some different definitions and ways of apprehension of so called Bullwhip consequence ( it can besides be referred to as Whiplash consequence or Whipsaw consequence in some beginnings ) . This phenomenon was foremost established by Forrester ( 1961 ) . The Bullwhip consequence can look in every industry and in every supply concatenation.

    The Bullwhip consequence is a effect of one or a combination of the following four of import facets related to provide concatenation direction, which are, harmonizing to Lee et al. , demand prognosis updating by supply concatenation spouses ; order batching ; monetary value fluctuation ; rationing and deficit gambling. Small order variableness on a client degree amplifies the orders for upstream participants, such as wholesales and makers, as the orders move up along a supply concatenation ( Paik et al. , 2007 ) . As shown in the Figure 1, when consumer gross revenues have truly little fluctuations, the retail merchants demand fluctuates more, the jobbers ‘ demand fluctuates more than the retail merchants demand and makers demand fluctuates even more than jobbers demand.

    ( Lee et al. , 1997a ) .

    Harmonizing to Forrester, variableness of client orders is normally less than variableness of fabricating orders. To his sentiment the chief ground for this state of affairs is the irrational behaviour of participants involved in a supply concatenation ( Paik et al. , 2007 ) .

    The Bullwhip consequence can be observed on different degrees:

    on macro degree it shows up in inefficiency in production, programming, sourcing, distribution, gross generalisation and its realisation ( Ravichandran, 2008 ) .

    on operation degree, it reflects in coevals of more stock list and maintaining it in inappropriate topographic point, to run into a specified service degree ( Ravichandran, 2008 ) .

    on public presentation degree, it can cut down the speed of hard currency, destroy possible gross and erode gross realisation ( Ravichandran, 2008 ) .

    These are merely some negative effects of the Bullwhip consequence ( Carlsson & A ; Fuller, 2001 ) :

    inordinate stock list investings

    hapless client service

    lost grosss

    the productiveness capital in operations becomes substandard as grosss are lost

    increasing in transit costs and sub-optimal transit form

    demand variableness may do lost production agenda

    The Bullwhip Effect is a consequence of behaviour of supply concatenation members and is created by themselves as a consequence of their rational determination devising in state of affairs of short or non full information about existent end-customer demand. The Bullwhip Effect is an internal consequence. Companies can disregard the Bullwhip consequence and suffer from it excess losingss or can seek to cut down it.

    2. The grounds for being of the Bullwhip consequence

    The good illustration of the Bullwhip consequence is the “ beer game ” . In this experiment ( it foremost took topographic point in 1980 ‘s ) participants play four different functions: clients, directors, wholesales and supplies of one of the popular beer trade name. It is non allowed to pass on with each other, so participants make determinations about telling merely based on orders from the following downstream participant. The consequences of this experiment are variableness and volatility of upstream degrees that ever exceed variableness and volatility of downstream degrees. The reading of this consequence can be different. On one manus it can be consequence of irrational determination doing on each degree ( Lee et al. , 1997a ) . But on the other manus, if the Bullwhip consequence is a drumhead of rational determination devising, we can indentify different chief causes, and so the Bullwhip consequence appears because of jobs in the supply concatenation construction.

    These are the chief causes of the Bullwhip Effect:

    1. Demand calculating updating ( Lee et al. , 1997a ) .

    Every company on each degree of supply concatenation makes calculating for production, capacity, stock list, stuff demands and demand degrees. Demand prediction is normally based on the order history from the company ‘s immediate clients, i.e. on what the company really observes ( Lee et al. , 1997a ) . By utilizing merely calculating methods, for illustration exponential smoothing ( prediction of future demand based on new day-to-day demand and it updating when new information is received ) the order that is sent to the providers is a contemplation of safety stock plus sum that is needed to fulfill future demand. The consequence is that the variableness of sum of orders will increase during traveling on supply concatenation from the end-customer to the terminal provider.

    2. Order batching ( in two signifiers – periodic ordination and push ordination ) ( Lee et al. , 1997a ) .

    There frequently appears a state of affairs when companies order one time a hebdomad, one time in two hebdomads, one time a month, alternatively of telling every twenty-four hours or every few yearss. This state of affairs appear because sometimes providers can non fulfill frequent ordination or transit costs are excessively high ( there is a large difference between full burden and less than truckload rate, providers may even supply clients with price reductions for full-truck tonss ) or clip for treating orders is excessively long. Companies want to do advantages on economic systems of graduated table but sum of telling varies during the clip ( people order more on the terminal of the hebdomad, terminal of the months, vacations etc. ) The Bullwhip consequence decreases when order rhythms lessening.

    3. Price fluctuations ( Lee et al. , 1997a ) .

    The bullwhip consequence besides appears when measure of goods that clients buy does n’t reflect their current demands. This is a consequence of clients purchasing in progress more than they need and stock some measure because of “ attractive ” monetary values ( it can be periodic price reductions or publicities events when merchandise monetary values are low ) . When degree of monetary values becomes normal, clients stop purchasing merchandises until they have it in stock. In this instance purchasing construction does n’t reflect the consuming construction, as a consequence the fluctuation of purchasing sum is more enormous than the fluctuation of devouring sum ( Lee et al. , 1997a ) . Such price reductions and publicities influence negatively the supply concatenation. It seems like industries and distributers create these monetary value fluctuations themselves, and it means that they set up a bullwhip consequence themselves.

    4. Rationing and deficit gambling ( Lee et al. , 1997a ) .

    There are state of affairss when demand is bigger than supply. In this instance client demands can be satisfied merely partially. So clients order bigger sums than they really need, and when the state of affairs becomes stable ( demand is equal to provide ) orders all of a sudden get cancelled. This means that clients give incorrect information about their existent demands to the providers, and this consequence is referred to as gambling ( Lee et al. , 1997a ) . This is a common state of affairs for a market.

    5. Material and information holds ( Paik et al. , 2007 ) .

    Harmonizing to Towill and his co-authors, stuff and information holds might be a major lending factor to the Bullwhip consequence ( Paik et al. , 2007 ) .

    6. Supply variableness ( Paik et al. , 2007 ) .

    Harmonizing to Taylor, supply variableness ( machine dependability jobs and quality jobs ) is one of the possible causes of the Bullwhip consequence. End product of the undependable machines fluctuates and it pushes the variableness of demands of the upstream members. Variability in production degree is therefore the initial trigger of demand variableness, which in bend triggers the Bullwhip consequence ( Paik et al. , 2007 ) .

    7. Number of echelons ( Paik et al. , 2007 ) .

    Harmonizing to Towill and his co-authors and to Ackere, cut downing figure of one or more intermediates lead to important reduction of the Bullwhip consequence ( Paik et al. , 2007 ) .

    3. The ways to cut down the Bullwhip consequence

    In the old chapter we described the grounds for being of the Bullwhip consequence. Understanding of these grounds gives a really good base to apprehension of how to antagonize the negative effects of the Bullwhip consequence. Many companies developed their ain successful mechanisms of contending the results of this consequence, and Hau L. Lee, V. Padmanabhan, and Seungjin Whang suggest to split these assorted enterprises into three classs: “ Information sharing ” , “ Channel alliance ” , and “ Operational efficiency ” ( see Table 1 ) .

    Table 1 ( Lee et al. , 1997a )

    Causes of Bullwhip consequence

    Information sharing

    Channel alliance

    Operational efficiency

    Demand prognosis update

    understanding system kineticss

    usage POS informations

    electronic informations interchange


    computer-assisted ordination ( CAO )

    vendor-managed stock list

    price reduction for information sharing

    consumer direct

    lead-time decrease

    echelon-based stock list control

    Order batching



    price reduction for truck-load mixture

    bringing assignments


    logistics outsourcing

    decrease in fixed cost of telling by EDI or electronic commercialism


    Monetary value fluctuations

    Continuous refilling plan ( CRP )

    Everyday low cost ( EDLC )

    Everyday low monetary value ( EDLP )

    Activity-based costing ( ABC )

    The above mentioned classs imply the followers:

    Information sharing: the information about existent clients ‘ demand is transmitted from the downstream site to the upstream ;

    Channel alliance is about coordination of different concern activities ( as pricing, transit, be aftering etc. ) between the upstream and the downstream sites in the supply concatenation, and

    Operational efficiency implies the set of activities that help to better public presentation, such as to cut down the lead-time.

    Lee et Al. introduced a set of efficient countermeasures that were designed to minimise the negative effects of the Bullwhip consequence ( Lee et al. , 1997a, B ) :

    Avoid multiple demand prognosis updates

    Since the chief ground of being of the Bullwhip consequence is the fact, that every member of the supply concatenation makes its ain demand calculating based on the information provided to it by its immediate downstream member, the one apparent manner to avoid this insistent processing of demand informations in a supply concatenation is to do the existent ingestion informations ( that is known at a downstream site ) available at all of the upstream sites. This would let all of the endeavors in a supply concatenation ( from downstream to upstream ) to do and update their prognosiss based on the same natural information.

    Datas sharing can be implemented, for case, by the usage of the electronic informations interchange ( EDI ) systems.

    But the pattern shows that in some instances even though all of the organisations in a supply concatenation use the same demand informations to do their prognosiss, the differences in calculating methods and/or purchasing patterns may still take to fluctuations in the orders placed with the upstream sites.

    Break order batches

    The chief thought here is to avoid another ground of visual aspect of the Bullwhip consequence – order batching – by developing the schemes that lead to smaller batches and therefore more frequent supply. One of the grounds of big order batches and low order frequences is the high cost of treating the orders, which can be avoided, for illustration, by the usage of electronic papers circulation alternatively of paper-based.

    The other ground of big order batches is the transit costs: the differences in the costs of full truckloads and less-than-truckloads are really high, and this makes companies to “ wait ” for the full truckloads and therefore stretch the refilling times, which besides creates order batching. This job can besides be avoided by bring oning by the makers their distributers to order mixtures of different merchandises at a clip ( a truckload from the same manufacturer may incorporate different merchandises alternatively of full burden of the same merchandise ) and therefore significantly increase the order frequence. This can be stimulated by offering price reductions by makers to their distributers if they order assorted tonss. The other effectual manner to work out the job of order batching is the usage of third-party logistics companies: these companies allow economic systems of graduated table by uniting tonss from different providers situated near each other and presenting these tonss to different companies, what is particularly really utile for little companies, for which full truckload refilling times are really long.

    Stabilize monetary values

    A really straightforward manner of extinguishing the Bullwhip consequence caused by forward purchasing is for the makers to cut down the degrees and frequences of sweeping price reductions. One of the most effectual ways of making it is implementing the mundane low monetary value ( EDLP ) pricing scheme. The pattern shows that this scheme is effectual both for the providers and for the clients since it helps to diminish costs of stock list, storage, transit etc. for every participant. Though with usage of the conventional accounting systems the benefits of the EDLP scheme compared to sweeping monetary value discounting scheme are non apparent for the purchaser, ABC systems in most instances explicitly show the advantages of EDLP scheme.

    Eliminate gambling in deficit

    The purpose of this step is to deprive purchasers of the inducements to overstate their orders in hope of the partial satisfaction of these orders by the providers. One of the simple ways to acquire rid of this ground of Bullwhip consequence visual aspect is as following: in instance of deficit the provider can apportion merchandises to the clients non based on their orders, but in proportion to past gross revenues records. Besides the purchasers ‘ desire for gambling may be lessened if the supplier portions its capacity and stock list information with them. The other manner of contending with purchasers ‘ “ gambling desire ” is to utilize rigorous supply contracts that restrict purchaser ‘s flexibleness in telling limitless measures of goods and free cancelling of orders.

    However, we have to acknowledge that the above mentioned steps of decrease of the Bullwhip consequence are non thorough and can non to the full extinguish the being of this consequence. A figure of scientific documents mathematically prove that the Bullwhip consequence still exists even when demand information is shared by all phases of the supply concatenation and all phases use the same prediction technique and stock list policy ( Chen et al. , 2000 ) , and even if about all of the above described causes ( like batching, monetary value fluctuations etc. ) are removed ( Croson & A ; Donohue, 2003 ) . This gives us the apprehension that the Bullwhip consequence job still needs to be closely scrutinized and other ways of cut downing this consequence are still need to be developed.


    In our concise but, we hope, significant overview we tried to reflect different attacks to the apprehension of the phenomenon called “ The Bullwhip consequence ” and the negative effects that it brings to the members of a supply concatenation, and to depict the most sound, to our sentiment, ways of cut downing this consequence, that were introduced by the research workers during the past two decennaries.

    We besides found that though during the last old ages to the probe of this affair a batch of scientists devoted a batch of their attempts, the job of acquiring rid of the Bullwhip consequence in a supply concatenation has non yet been solved wholly: a figure of scientific documents mathematically prove that the Bullwhip consequence still exists even when about all of the discovered ( so far ) causes of its visual aspect ( like batching, monetary value fluctuations etc. ) are removed. This means that the Bullwhip consequence job still needs to be closely scrutinized and other ways of cut downing this consequence are still need to be developed.

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