Key MBA Models

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The bullwhip effect

The ‘bullwhip effect’ illustrates the impact of coordination problems in traditional supply chains. It refers to the idea that small oscillations in orders from customers are amplified as you move back in the supply chain towards the production end. By understanding this effect, you can put in place mechanisms to manage it.

When to use it

• To understand why customer deliveries get delayed, or why you end up with large amounts of inventory.
• To make sense of the dynamics of a complex supply chain.
• To improve the way the supply chain functions.

Origins

Around 1990, managers at consumer goods giant Procter & Gamble coined the term ‘bullwhip effect’ to label a series of erratic order patterns in its baby-nappy business ...