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The Bullwhip Effect
Source: Wikipedia

Inefficiencies in the supply chain can cause a phenomenon referred to as the Bullwhip Effect. The idea, first identified by MIT professor Jay Forrester, identifies a trend of ever-increasing swings in inventory in response to shifts in customer demand as one looks further back in the supply chain. In other words, small variances in demand in lower parts of the supply chain create larger variances higher up the chain.

While it is a common issue for supply chain management, understanding the causes can you to mitigate the problem.

What causes the Bullwhip Effect

There are many contributing factors that create the effect in supply chains, such as:

  • Disorganisation
  • Lack of communication
  • Free return policies
  • Order batching
  • Price variations
  • Demand information.

www.aalhysterforklifts.com.au has a good article explaining the Bullwhip Effect in full. It provides some simple examples to better illustrate the phenomenon and looks at these causes in more detail.

How to Minimize the Bullwhip Effect

Improving communication up the supply chain is just one of the changes that can help minimise the impact of the effect.

This article from www.usanfranonline.com looks at Managing the Bullwhip Effect on Your Supply Chain in more detail and provides strategies to help to reduce the impact.

4 Ways Supply Chain Management Can Reduce the Bullwhip Effect from www.manufacturing.gppcpa.com also looks at strategies to reduce the effect and improve supply chain management overall.

“The keys to effective supply chain management are visibility, open communication, and fast access to information and insight. With these five attributes, your supply chain will be more effective, and you will have minimized the risk of excess inventory as well as inventory shortages. Without them, you will feel the sting of the bullwhip effect.”