Understanding the causes of the bullwhip effect in a supply chain

Abstract

Purpose

This study attempts to determine the relative contribution of each of the causes of the bullwhip effect and to identify which causes of the bullwhip effect have relatively significant impacts on the variability of orders in supply chains.

Design/methodology/approach

Computer simulation models are developed. A fractional factorial design is used in collecting data from the simulation models. Statistical analyses are conducted to address the research objectives.

Findings

When all of the nine possible causes of the bullwhip effect are present in the simulation models, the following six factors are statistically significant: demand forecast updating, order batching, material delays, information delays, purchasing delays and level of echelons. Among these six factors, demand forecast updating, level of echelons, and price variations are the three most significant ones.

Research limitations/implications

Simulation models for the beer distribution game are developed to represent supply chains. Different supply chain structures can be constructed to examine the causes of the bullwhip effect.

Practical implications

In order to mitigate the bullwhip effect, supply chain managers need to share actual demand information and coordinate production and distribution activities with their partners.

Originality/value

This study measures the relative contribution of each of the causes of the bullwhip effect and provides evidence that transparent and accurate information flow and supply chain coordination could be a key to reduce the amplification of demand in supply chains.

Citation

Paik, S. and Bagchi, P.K. (2007), "Understanding the causes of the bullwhip effect in a supply chain", International Journal of Retail & Distribution Management, Vol. 35 No. 4, pp. 308-324. https://doi.org/10.1108/09590550710736229