Operations Management: Sustainability and Supply Chain Management, Twelfth Edition

Managing the Bullwhip Effect

Figure S11.2 provides an example of the bullwhip effect, which describes the tendency for larger order size fluctuations as orders are relayed to the supply chain from retailers. “Bullwhip” fluctuations create unstable production schedules, resulting in expensive capacity change adjustments such as overtime, subcontracting, extra inventory, backorders, hiring and laying off of workers, equipment additions, underutilization, longer lead times, or obsolescence of overproduced items.

Procter & Gamble found that although the use of Pampers diapers was steady and the retail-store orders had little fluctuation, as orders moved through the supply chain, fluctuations increased. By the time orders were initiated for raw material, ...