The Bullwhip effect is an industry term that you are bound to encounter in the supply chain business. Even if you have never heard the term before, you are likely to have seen its effects in practice. The bullwhip effect is easy to picture, and it hits the supply chain like a type of increasing chain reaction. Picture a bullwhip being struck forward or the increasing vibration on a plucked guitar string. For supply chain businesses, the bullwhip effect can have negative consequences that are felt in every department. Here’s how to recognize and combat the supply chain bullwhip effect.
Managing the Supply Chain Bullwhip Effect
The Bullwhip Effect
This phenomenon isn’t exclusively linked to the supply chain business. In fact, it applies to any business where there are ripple effects through the rest of the company due to a single action or decision.
The Bullwhip effect can be visually represented by plotting all the information on a graph. When you look at the statistical data, the representative line on the graph will fluctuate like a waveform. First, there will be small ripples. Then, larger and bolder waves moving up and down follow.
Like a bullwhip in slow motion, a simple action (like a flick of the wrist for a whip), causes the line to heighten on the other end due to the traveling effect of the initial action.
Once set off, the bullwhip effect can’t just be stopped in motion. Instead, it has to be controlled and slowly brought back to equilibrium.
Are you starting to see how the bullwhip effect can relate to what happens on the average shipping room floor?
The Beginnings
The bullwhip effect, when it applies to shipping and supply chains, can be traced back to the first few phases of the supply: ordering and listing the necessary items.
What’s the first thing a bullwhip does if you go back to picture the information on a graph? The bullwhip goes up.
When we talk about the supply chain industry and the bullwhip effect, initial ordering is in abundance. Statistically, you’ve got the beginning of the whip – and what the supply chain has access to, shoots right up.
This happens when a company tries to be more prepared than the industry or its competitors. Another reason this happens is that a company will try to buy for projected sales instead of actual sales. In other words, they buy for where they imagine the industry and demand are going to be instead of where it is at.
It can be a good idea to think ahead. However, the consequences can be harsh. Next, we demonstrate what happens when what you thought and what actually happens are not the same thing.
What Happens Next?
The initial consequence of the bullwhip effect is a sharp curve that goes up.
For example, a supply chain manager may place a large order in preparation for high customer demand.
Then, the bullwhip starts to fluctuate. The demand goes down, then up, then down, and then starts to affect other departments. Chances are what was ordered doesn’t match up with what is being sold.
While it was a good-natured attempt to prepare or think ahead, overordering then leads to market saturation. Excessive inventory can then cause problems with having too much of one thing at a bad time in the market.
If one department takes a sudden and unexpected initiative that doesn’t work as well as they thought, oftentimes the other departments will have to deal with it. That’s the chain reaction, and that’s the basic bullwhip effect in the supply chain.
In order to control and reduce the bullwhip effect, consider the following strategies:
- Upgrade ordering systems
- Encourage department communication
- Train staff better
- Always monitor ordering
Additional Information: A Normal Supply Chain? It’s ‘Unlikely’ in 2022
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