Bullwhip Effect

The term bullwhip effect describes the phenomenon observed in many supply networks, that the variability of the demand increases with the distance of a node from the end product demand. This phenomenon was detected as early as in the fifties of the last century.

The bullwhip effect has become popular through the observation of Procter & Gamble in the supply chain of its Pampers diapers. Although the number and demand rate of the end product customers (the babies) was nearly constant on the average, the period demands arriving from the retailers at the wholesalers and from the wholesalers at the Procter & Gamble factory were subject variations that increased with the distance from the end customer level.

Causes of the bullwhip effect are:

- Information distortion cause by forecasting methods
- Batch ordering
- Anticipation of replenishment shortages due to inventory rationing
- Anticipation of proce changes