What Is the Bullwhip Effect?

"Bullwhip effect" is a term in economics, which refers to a phenomenon of amplification of demand variation in the supply chain. It is the inability to effectively share information when the information flow is passed from the final client to the original supplier. The step-by-step enlargement has led to more and more fluctuations in demand information. The distorted enlargement of this information acts like a bullwhip on the graph, so it is known as the bullwhip effect.

Bullwhip effect

(Phenomena in marketing)

English name: Bullwhip effect

"Bullwhip effect" in today's

From a supplier's perspective, the "bullwhip effect" is the level of sellers in the supply chain (

The earliest person who noticed this step-by-step amplification of demand fluctuations in the supply chain was J. Forrester. As early as 1961, he based on the theory of system dynamics.

The "bullwhip effect" is a characteristic of inventory management under the supply chain. The traditional inventory management method cannot solve this problem well. It can only be solved by using innovative supply chain inventory management methods. The following four measures can be used to reduce the bullwhip effect:

Bullwhip effect for information sharing

Because the bullwhip effect is mainly caused by forecasting orders at each stage of the supply chain rather than by customer demand, and the only requirement of the supply chain is to meet the needs of end customers, if retailers share POS data with other supply chain members, Enable members to respond to changes in actual customer requirements. Therefore, the implementation of point-in-sale data (POS) information sharing in the supply chain enables each stage of the supply chain to make more accurate forecasts in accordance with customer requirements, thereby reducing demand forecast variability and reducing the bullwhip effect. At the same time, implement common forecasting and common planning to ensure the coordination of each stage of the supply chain. Starting from the overall supply chain, design the retailer's inventory replenishment control strategy. Since the retailer is related to the purchase of the end customer, the key is to replenish the retailer's inventory. Common VMI strategies and continuous supplement strategies.

Bullwhip effect improves operation

Improve operation, shorten lead time and order quantity to reduce bullwhip effect. Shorten the information lead time for order processing and information transmission through the implementation of bull model and other advanced communication technologies, shorten the lead time through direct transshipment, shorten the lead time through flexible manufacturing, and implement advance shipment notice (ASN) Reduce order lead time. The lead time has been shortened and the variability in demand has been relatively reduced. To reduce the order quantity, it is necessary to reduce the transportation, order, and acceptance costs related to fixed order costs. Using electronic ordering systems (CAD) and EDI to reduce order costs, and reducing the order quantity can reduce the accumulated changes in the two adjacent stages of the supply chain Volume, thereby reducing the bullwhip effect.

Bullwhip effect stabilizes prices

Develop corresponding pricing strategies, encourage retailers to make small-volume orders (continued on the previous page of the letter) and reduce early purchases to reduce the bullwhip effect. For example, changing a batch-based discount strategy to a total-based discount strategy, that is, to formulate a discount policy based on the total purchase volume within a specific period (such as one year), which can reduce the batch size each time; implement daily parity Policies and methods to limit purchases during promotions stabilize prices and reduce pre-purchase actions, thereby reducing the bullwhip effect.

Bullwhip Effect Strategic Partnership

Through the establishment of strategic partnerships, mutual trust, and information sharing, the supply and demand of each stage of the supply chain can be well matched, reducing transaction costs. For example, if the supplier trusts the retailer's order and forecast information, he can dispense with the forecasting link. Similarly, if the retailer trusts the supplier's quality and delivery, he can reduce the counting and inspection steps when receiving the goods. In general, trust and good relationships at all stages of the supply chain can reduce repeated efforts, reduce transaction costs, and reduce the bullwhip effect. Wal-Mart and P & G's strategic partnership has enabled both parties to achieve good results and reduce the bullwhip effect.