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De waarde van informatie - The Bullwhip effect

7 important questions on De waarde van informatie - The Bullwhip effect

Which main factors contribute to the increase in variability in the supply chain?

Demand forecasting
Lead time
Batch ordering
Price fluctuation
Inflated orders

How does demand forecasting relate to the bullwhip effect?

An attractive policy used in practice by each stage of the supply chain is periodic review policy, where the inventory policy is characterized by a single parameter, the base-stock level.Typically, managers use standard forecast smoothing techniques to estimate average demand and demand variability. Moreover, safety-stock and base-stock level depend heavily on forecasting done by previous data, which can fluctuate and thus increasing variability (bullwhip effect).

How does lead time relate to the bullwhip effect?

When lead times increases, so does the bullwhip effect increase. With longer lead times, a small change in the estimate of demand variability implies a significant change in safety stock and base-stock level, leading to a significant change in order quantities, and thus leading to an increase in variability.

How does batch ordering relate to the bullwhip effect?

If the retailer uses batch ordering, then the wholesaler will observe a large order, followed by several periods of no orders, followed by another large order and so on. Thus, the wholesaler sees a distorted and highly variable pattern of orders.

How does price fluctuation relate to the bullwhip effect?

If prices fluctuate, retailers often attempt to stock up when prices are lower. This is called forward buying. This implies that retailers purchase large quantities during distributors' and manufacturers' discount and promotion time and order relatively small quantities at other time periods.

How does inflated orders relate to the bullwhip effect?

They magnify the bullwhip effect. Such orders are common when retailers and distributors suspect that a product will be in short supply, and therefore anticipate receiving supply proportional to the amount ordered. When the period of shortage is over, the retailer goes back to its standard orders, leading to all kinds of distortions and variations in demand estimates.

Which four methods exist for decreasing or eliminating the bullwhip effect?

Reducing uncertainty
Reducing variability
Lead-time reduction
Strategic partnerships

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The question on the page originate from the summary of the following study material:

Designing and Managing the Supply Chain | 9780071270977 | David Simchi Levi

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