The bullwhip effect (whip effect or shock wave effect) is the tendency for an excessive fluctuation of inventories and orders received at the primary levels of supply chains.
Despite the fact that for many products, market demand is constant, supplies and inventories fluctuate greatly in the different stages of the production process until reaching the final consumer.
The bullwhip effect then refers to the increase in variability in the upward direction in the supply chain, from the final consumer to the producer.
As the different elements of the value chain do not share information on inventories or demands, the bullwhip effect can have an impact on supply levels in the chain, that is, almost unintentionally, the effect can lead to stockouts.
Definition
The bullwhip effect on demand forecasting arises when each channel member forecasts demand based on information derived from the order patterns of an immediate lower member. (Ballou, p.723)
It basically consists in that consumer demand does not present representative fluctuations, while inventories reveal important changes, showing decrease or excess in stock levels. If in the different links of the supply chain, they do not handle constant and truthful information on their inventories and consumer demand for their products, the bullwhip effect gains strength, generating a safety stock, which, as it is known, becomes radically more expensive., the final product. (Heredia, p.127)
The whip effect occurs when orders are passed from retailer to wholesaler to manufacturer with fluctuations increasing at each step in the sequence. The "whiplash" of supply chain fluctuations increases costs associated with inventory, transportation, shipping and receiving, while decreasing customer service and profitability. (Heizer and Render, p.422)
Causes
Variability in the supply chain is attributed to several elements:
- Lack of information between suppliers and intermediate buyers Handling without order in production orders, generating volatility in shipments Possible periods without demand for goods Possibilities of obtaining wholesale discounts (Which generates time problems) Inflated orders or strategic. (Taking advantage of market conditions). Supply uncertainty. It can generate unnecessary orders.
Ways to fight it
- Centralization and communication of information on demand at the different levels of supply chains Elimination of offers to the consumer in order to have constant demands Greater efficiency in orders Improve information technology.
Bibliography
- Ballou, Ronald H. Logistics: Supply Chain Management. Pearson Education, 2004. Heeredia Viveros, Nohora Ligia. Purchasing management: The new competitive strategy. ECOE Ediciones, 2013 Heizer, Jay and Render, Barry. Principles of operations management. Pearson Education, 2004.
