What is The Bullwhip Effect in demand?

 

The Bullwhip Effect (or Whiplash Effect) is an observed phenomenon in forecast-driven distribution channels.

 

The concept has its roots in J Forrester's Industrial Dynamics (1961) and thus it is also known as the Forrester Effect.

 

Since the oscillating demand magnification upstream a supply chain reminds someone of a cracking whip it became famous as the Bullwhip Effect.

 

The bullwhip effect refers to erratic shifts in orders up and down the supply chain because of poor demand forecasting or variation of order size.

Best Regards

'BullWhip' is a term coined by Hau Lee from Stanford University. The bullwhip effect can be explained as an occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance then the sales to the end customer. These irregular orders in the lower part of the supply chain develop to be more distinct higher up in the supply 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 resulting in exaggerated fluctuations.

The bullwhip effect refers to a frustrating phenomenon that frequently starts with falling customer demand (although it could start with the reverse...a previously unanticipated rapid rise in customer demand). This fall in customer demand prompts retailers to under-order so as to reduce their inventories. In turn, wholesalers under-order even further to reduce theirs and the effect amplifies up the supply chain until suppliers experience stock-outs and then over-order in response. The effect can ripple up and down the supply chain many times. The effect is amplified as it moves up the supply chain and further away from the customer