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Bull Whip effect:
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While customer demand for specific products does not very much
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The increase in variability as we move up the supply chain is called the bullwhip effect
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There are five main causes for the bullwhip effect: these are:
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Lead times
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Price fluctuations
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Lead times: a small change in estimates of demand variability leads to significant changes in
estimates of safety stock and base stock level, which leads to significant changes in order
quantities because we multiply the estimates of the average and standard deviation of daily
customer demand by the sum of lead time and review period
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Price fluctuates: retailers stock up when prices are lower, through promotions and discounts
(known as forward buying), so order more in those periods increasing variability in orders
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4 cures for the Bullwhip Effect:
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Reduce variability
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Strategic partnerships
Reduce uncertainty: You can reduce uncertainty by using centralised information which
means all stages in the supply chain are provided with actual customer demand
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Reduce variability: using an EDLP strategy- reduces variability in orders as you use a single
consistent price instead of using promotions or discounts which reduces variability in
demand
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Lead time has two
components- order lead time (time between customer order received and customer order
delivered) - this can be reduced by using cross docking
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Strategic Partnerships: Change the way information is shared and inventory is managed
within the supply chain
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Company Examples:
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Haier: every control and clear management
HP: used postponement and portfolio planning
Barilla: used JITD system and VMI inventory



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