A well-known example of supply chain dynamics is the bullwhip effect, a term first
coined by the logistics executives of Procter and Gamble (Lee et al., 1997). It is so-called
because small order variability at the customer level amplifies the orders for upstream
players, such as wholesalers and manufacturers, as the order moves up along a supply
chain. As shown in Figure 1, even when consumer sales show relatively constant
demands, the demand/order placed by a retailer to a wholesaler is likely to fluctuate
more than the actual demand perceived by that retailer. The wholesaler’s order to the
manufacturer and the order of the manufacturer to the supplier fluctuate even more.
This increase in the variability of orders at each stage in a supply chain is often called
the bullwhip effect. Bullwhip effect causes excessive swings in different demand or
inventory-stocking points throughout the supply chain. This swing is also likely to be
wider upstream in the supply chain.
Owing to the excessive swings and the amplification of demands, the bullwhip
effect is a major concern for participants involved in a supply chain. The increased