Analysis of the causes of 'bullwhip' effect in a supply chain: A simulation approach

An important observation in supply chain management suggests that variability of demand amplifies as one moves up a supply chain. For instance, the orders placed by a retailer to a wholesaler are likely to be greater than the actual customer demand observed by that retailer. Orders to the manufacturer spike even more. This increase in the variability of the orders seen by each supply chain members is known as the bullwhip effect.; Although many previous studies have identified different causes of the bullwhip effect, little attention was given to the measurement of the bullwhip effect based on the causes identified in the previous literature. Most of the past work acknowledged the existence of the bullwhip effect and simply enumerated the possible causes. Many of the past studies also failed to accurately investigate the relative contribution of each of the causes on the bullwhip effect.; Using a fractional factorial experimental design, this study seeks to achieve the following objectives: (1) To examine the aggregate impact of the set of the causes of the bullwhip effect on the order variance in a supply chain. (2) To identify the relative contribution of each of the causes of the bullwhip effect on the order variance in a supply chain. (3) To determine which cause of the bullwhip effect has the most significant impact on the order variance in a supply chain. (4) To formulate recommendations that managers can consider to improve their supply chain performance.; This study takes nine causes of the bullwhip effect identified in the previous studies and examines the aggregate effect of the causes on the variance of orders in a supply chain. Once we determine the overall impact of the causes, we assess the relative contribution of each of the causes on the order variance in a supply chain. Based on the relative contribution, we determine which cause has the most significant effect on the bullwhip effect. This analysis allows supply chain managers to rank each of the causes in order of relative significance and to focus on the area, which needs more attention to control the bullwhip effect.