Fundamentals of Supply Chain Theory, 2nd Edition

Chapter 13 The Bullwhip Effect

13.1 Introduction

In the early 1990s, executives at Procter & Gamble (P&G) noticed a peculiar trend in the orders for Pampers, a brand of baby diapers. As you might expect, demand for diapers at the consumer level is pretty steady since babies use them at a fairly constant rate. But P&G noticed that the orders placed by retailers (e.g., CVS, Target) to distributors were quite variable over time—high one week, low the next. The distributors' orders to P&G were even more variable, and P&G's orders to its own suppliers (e.g., 3M) were still more variable. (See Figure 13.1.)

Figure 13.1 Increase in order variability in upstream supply chain stages.

This phenomenon is known as the bullwhip effect (BWE), a phrase coined by P&G executives that refers to the way a wave's amplitude increases as it travels the length of a whip. Sometimes it's also known as the “whiplash” or “whipsaw” effect. The BWE has been observed in many industries other than diapers. For example, Hewlett‐Packard (HP) noticed large variability in the orders retailers placed to HP for printers, even though demand for printers is fairly steady. Similarly, the demand for DRAM (a component of computers) is more volatile than the demand for computers themselves. Wide swings in order sizes can cause big increases in inventory costs (for both raw materials and finished goods), overtime ...