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.