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Bullwhip effect

The bullwhip effect is a well-known symptom of coordination problems in (traditional) supply chains.

It refers to the effect that the amount of periodical orders amplifies as one moves upstream in the supply chain towards the production end.

Even in the face of stable customer demand small variations in demand at the retail end tend to dramatically amplify upstream the supply chain with the effect that order amounts are very erratic, and can be very high in one week and almost zero in the next week.

The term was first coined around 1990 when Procter&Gamble perceived erratic and amplified order patters in its supply chain for baby diapers. The effect is also known by the names whiplash or whipsaw effect.

As a consequence of the bullwhip effect a range of inefficiencies occur throughout the supply chain:

  • high (safety) stock levels
  • poor customer service levels
  • poor capacity utilisation
  • aggravated problems with demand forecasting
  • ultimately high cost and low levels of inter-firm trust

While the effect is not new, it is still a timely and pressing problem in contemporary supply chains.

Overview

This section provides an overview of the beergame, its history, rules, and different versions of the game. It also describes the bullwhip effect.

Please note that all explanations given in this section are based on the modified table version of the beergame, for which I also provide the materials in the respective section.

 

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