Causes of the Bullwhip Effect
Perhaps the best illustration of the bullwhip effect is the well-known “beer game”. In the game, partici-a pants(students, managers, analysts, and so on) play the roles of customers, retailers, wholesalers, and sup-f pliers of a popular brand of beer. The participants cannot communicate with each other and must make order decisions based only on orders from the next b downstream player. The ordering patterns share a common, recurring theme: the variabilities of an up- stream site are always greater than those of the downstream site, a simple, yet powerful illustration of the bullwhip effect. This amplified order variability may be attributed to the players irrational decision making. Indeed, Stermans experiments showed that human behavior such as misconceptions about inventory and demand information, may cause the bullwhip effect.
In contrast, we show that the bullwhip effect is a consequence of the players rational behavior within the supply chain's infrastructure. This important distinction implies that companies wanting to control the bullwhip effect have to focus on modifying the chain's infrastructure and related processes rather than the decision makers' behavior.
We have identified four major causes of the bull whip effect
l. Demand forecast updating
2. Order batching
3. Price fluctuation
4. Rationing and shortage gaming
Each of the four forces in concert with the chains infrastructure and the order managers' rational decision making create the bullwhip effect. Understanding the causes helps managers design and develop strategies to counter it.