What is the bullwhip effect?

"Bullwhip effect" is an image description of the distorted demand information transmitted in the supply chain.

The basic idea is that when each node enterprise in the supply chain only makes production or supply decisions based on the demand information from its adjacent subordinate enterprises, the untrue demand information will be transmitted upstream along the supply chain, thus resulting in the phenomenon of gradual amplification.

There are six main reasons for the "bullwhip effect", namely, demand forecast correction, order batch decision-making, price fluctuation, shortage game, inventory responsibility imbalance and coping with environmental variation.

Create background

J.Forrester was the first person to notice the increasing demand fluctuation in the supply chain. As early as 196 1, he analyzed a three-stage four-node supply chain system according to the system dynamics theory, and pointed out that for seasonal goods, the demand change perceived by manufacturers far exceeded the demand change of customers, and the internal structure, strategy and interaction of the supply chain were the reasons for the amplified demand change.

Sterman designed the classroom game of "Beer Game" (1989). Based on the study of human behavior, it is considered that the misunderstanding of feedback information by decision makers is the main reason for this phenomenon. Hau L Lee et al. (1997) made a comprehensive and in-depth analysis of the phenomenon of demand amplification, summarized four reasons leading to bullwhip effect, and put forward a quantitative model and method of bullwhip effect.