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The Concept of Bullwhip Effect

Definition of Key Concepts

The Bullwhip effect is essentially a phenomenon that arises when demand varies along the supply chain (Chen & Lee, (2012); Yao & Zhu (2012). This means that the information about the demand changes as it passes from one point to the other. In fact, it happens when the orders originate from a downstream member to an upstream member. An upstream member, for example, could be a retailer while an upstream member could be a manufacturer. As the orders are made by the retailer to the manufacturer, the information gets distorted and this results in a large difference in sales as compared to the orders.

The Bullwhip Effect is of great concern because it can lead to low profits, increased costs, poor use of transport and storage facilities, inefficiency in the use of limited resources and even crisis in placing orders. All these reasons explain why this is a great area of interest (Bhattacharya & Bandyopadhyay, 2011). It is also a significant area that should be studied in order to increase efficiency in how enterprises carry their day to day activities. I am also interested in this topic because I would like to contribute to its solution. Moreover, an aspect of academic curiosity sparked my interest in the topic.

The Concept of Bullwhip Effect

Comparing Research with Module Work

The research conducted shows a number of similarities with what I learned in the Module. For example, the Bullwhip Effect concept appears to be the same. Even the environment and circumstances in which it occurs is very similar. For both, the phenomenon occurs in a supply chain where there are members placing orders to each subsequent member in the upstream. In both, the fact that Bullwhip Effect results in an increased or exaggerated variability in the upstream end more than the downstream is recognized. The Bullwhip effect stems from different factors. Some of the causes are rationing and shortage gaming, price fluctuations, demand forecast, updating and order batching. These causes, coupled with the decisions of the manager, most of which are rational, lead to the effect of Bullwhip. Forecasts made based on information from the member down the stream lead to amplification of demand. Dependence on these downstream data pieces often leads to deceptive stock planning. As such, many upstream members end up having a greater variability of demand (Lee et al., 2014). Another cause is the frequent change in prices in the market. The manufacturers also lower the prices of their goods. This makes more suppliers in the downstream end to do ‘forward buying’. This is in a bid to minimize the purchasing costs. When the prices become normal, the consumers will stop purchasing goods as they used to do when the prices were down. The result is an increased demand at the upstream level. This creates the Bullwhip Effect. It then becomes clear that the consumption patterns are the quantities being bought vary greatly from each other (Lee, Padmanabhan & Whang, 2015).

Article Summary:  A Review of the causes of Bullwhip Effect in a Supply Chain

Yao and Zhu,’s 2012 article ‘Information Systems Research. Do Electronic Linkages Reduce the Bullwhip Effect? An Empirical Analysis of the US manufacturing chains’ expounds more on the causes of the Bullwhip Effect. I selected this article because it gives a very comprehensive explanation on each cause of the phenomenon. The causes that are tackled in the article include the following: the operational causes and the behavioral causes. Order batching, price fluctuation, lead time, inventory policy, replenishment policy, lack of transparency, demand forecasting and rationing and shortage gaming are in the category of operational causes of the Bullwhip Effect. The article also outlines the behavioral causes which include the following: lack of proper training, fear of going out of stock and neglect or little attention to time delays in making orders. The article explains in detail how the various causes lead to the Bullwhip Effect. Forward buying makes the distributors to make more orders when the manufacturers offer attractive prices for their products. A consequence of this is price fluctuations. When the prices become normal, the consumers stop buying the products until the inventories are depleted. The end result is a big variation between the consumer buying patterns and the amount of product being bought. This is the Bullwhip Effect.

Almost all the companies in the supply chain make their demand forecast based on the history of orders. The implication of this is an exaggerated amount demand upstream resulting from orders of safety stock by the members downstream. This eventually results in a high distortion of demand in the upstream end. Order batching is another cause of the Bullwhip effect.  The companies downstream may decide to accumulate their orders and make one order instead of making a series of many orders to replenish their stock. The result of this practice is that the members in the upper stream get erratic orders and these leads to distorted demand. The behavioral causes are mainly due to underweighting of supply by the managers who make the decisions. The article finally proposes a number of ways to solve or avoid the above problem. These are; avoid making multiple forecasts, break order batches, stabilizing the prices of commodities and eliminating gaming in shortage.

Biblical Integration

The above topic is related to the biblical accounts on human character. The Bullwhip Effect is a problem that requires the managers in the involved companies to maintain a high level of positive thinking and sobriety in order to solve it. Philippians 4:13 says ‘I can do all things through Christ who strengthens me’. This encourages managers and decision makers to remain faithful in solving everyday problems. On the other hand, Proverbs 12: 1 says that ‘he who loves instruction loves knowledge’. This encourages managers to always desire to understand their context of operation. The knowledge they gain should help them to solve the day to day difficulties. Additionally, Proverbs 25: 28 says, ‘Losing self-control leaves you as helpless as a city without a wall’. This verse commands that the managers in companies should stay on top of everything to maintain and control the business. As such, this ensures the business continues to operate for a long time (Bhattacharya & Bandyopadhyay, 2011)

Practical Application

The concept of Bullwhip Effect finds its importance in the decision-making process regarding inventories. All managers and   people running individual businesses or companies should be able to identify the various potential causes of Bullwhip effect in their enterprise. Knowledge on intra-organizational bullwhipping is particularly important for control purposes. Managers use the knowledge about this phenomenon to control inventory. They are able to make orders at the right time and for the right reasons. According to Lee, Padmanabhan and Whang (2015), unnecessary costs are also avoided when full knowledge about this phenomenon is applied to control stock and in making decisions on procurement. Valuable knowledge is also gained on the behaviors of consumers and how they influence stock management strategies.

Annotated Bibliography

  1. Bhattacharya, R., & Bandyopadhyay, S. (2011). A review of the causes of bullwhip effect in a supply chain. The International Journal of Advanced Manufacturing Technology, 54(9-12), 1245-1261.

This article highlights the various research studies that have been done on Bullwhipping in the past. It also gives a detailed explanation on the various causes of the Bullwhip Effect. An overview on the ways used by various organizations or industries to solve the problem of Bullwhipping is also handled in detail. Due to the previous inadequacies noted in the research studies carried out in the past, the article has identified the various gaps in the research of this topic. In addition, the article gives the further directions on how proper research studies can be carried out to give reliable information.

  1. Lee, H. L., Padmanabhan, V., & Whang, S. (2015). The bullwhip effect in supply chains1. Sloan management review, 38(3), 93-102.

The article analyses the effects the Bullwhip Effect has on the various supply chains. It focuses more on the subject of the role of managers in making informed decisions when it comes to stock control. Thus, the author emphasizes the role of the manager in controlling inventory. It also highlights the measures that can be taken by organizations to curb the Bullwhip Effect. It goes further to even explain some of the common causes of this phenomenon and how it can be solved. As such, this article tackles the inter-organizational relationship very well.

  1. Chen, L., & Lee, H. L. (2012). Bullwhip effect measurement and its implications. Operations Research, 60(4), 771-784.

The authors commence by giving a succinct definition of the Bullwhip concept. Furthermore, the authors outline the various methods of measuring the Bullwhip Effect. Various factors that drive this phenomenon are also mentioned in detail. These drivers include seasonality and batch ordering. These drivers can be used to approximate the potential for the occurrence of this phenomenon. The article further highlights a number of consequences of Bullwhip measurement on the day to day managerial decisions. A theoretical framework upon which the various elements are defined and described is also outlined in detail. This article forms a basis for the calculated decisions that are made by the managerial team.

  1. Lee, S. Y., Klassen, R. D., Furlan, A., & Vinelli, A. (2014). The green bullwhip effect: Transferring environmental requirements along a supply chain. International Journal of Production Economics, 156, 39-51.

The article focuses on the environmental features that can be passed along the supply chain. It terms it as the green Bullwhip Effect. The authors explain how these environmental issues can vary along the supply chain. They can, on a positive note help the company build its environmental capabilities. It also talks about customer relationship to the business. Competition and other environmental issues can be passed along the chain and this can modify the way the members in the upstream part of the chain carry out their business. It is vital for managers to consider kind variability when making decisions for the business.

  1. Yao, Y., & Zhu, K. X. (2012). Research Note-Do Electronic Linkages Reduce the Bullwhip Effect? An Empirical Analysis of the US Manufacturing Supply Chains. Information Systems Research, 23(3-part-2), 1042-1055.

The article begins by recognizing the fact that the Bullwhip Effect is one of the major causes of inefficiencies in a business entity. Prior research studies and literature had shown that the use of Electronic linkages reduces the Bullwhip Effect in all contexts of business. However, the authors claim that this is not absolutely applicable to all levels of business. The use of Electronic Linkages in the upstream level has different consequences as when it is used in the downstream level of a supply chain.  The study shows that the use of Electronic Linkages by supplier industries reduces the Bullwhip Effect while it increases it in the buyer industries.

References
  • Bhattacharya, R., & Bandyopadhyay, S. (2011). A review of the causes of bullwhip effect in a supply chain. The International Journal of Advanced Manufacturing Technology, 54(9-12), 1245-1261.
  • Chen, L., & Lee, H. L. (2012). Bullwhip effect measurement and its implications. Operations Research, 60(4), 771-784.
  • Lee, H. L., Padmanabhan, V., & Whang, S. (1997). The bullwhip effect in supply chains1. Sloan management review, 38(3), 93-102.
  • Lee, S. Y., Klassen, R. D., Furlan, A., & Vinelli, A. (2014). The green bullwhip effect: Transferring environmental requirements along a supply chain. International Journal of Production Economics, 156, 39-51.
  • Yao, Y., & Zhu, K. X. (2012). Research Note-Do Electronic Linkages Reduce the Bullwhip Effect? An Empirical Analysis of the US Manufacturing Supply Chains. Information Systems Research, 23(3-part-2), 1042-1055.

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