) discussed four possible causes of the bullwhip effect: demand
forecast updating, order batching, price fluctuation, and rationing and shortage
gaming. Demand forecast updating suggests that demand amplification occurs due to
the safety stock and long lead time. As orders are forecasted and transmitted along the
supply chain, the safety stocks are built up, and thus the bullwhip effect occurs.
Material requirements planning or economics of transportation require companies to
order goods at certain times. This periodic batching causes surges in demand at a
particular time period, followed by the periods of time with no or little orders, and other
time periods with huge demands. Price fluctuation, which usually results from price
discount or promotion, also distorts buying pattern and creates bigger variability of
demand and demand lumpiness. Finally, when demand significantly exceeds supply,
manufacturers often ration products to their customers based on what they order.
Recognizing this rationing policy, the customers place orders larger and more
frequently than what they really need with a hope of getting more products. This
tendency is similar to excessive ordering without fully considering the orders that have
been placed before but not yet received, resulting in distorted demand information. The
arguments of Lee et al. are different from those of the two previous researchers in that
they no longer blame the irrational behavior of decision makers for the bullwhip effect.
Rather they think that the bullwhip effect is a consequence of rational behavior given
the supply chain structure and its related processes.