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What is the Bullwhip Effect? Understanding the concept & definition

Filed under: Logistics

Through the numerous stages of a supply chain; key factors such as time and supply of order decisions, demand for the supply, lack of communication and disorganization can result in one of the most common problems in supply chain management.  This common problem is known as the bullwhip effect; also sometimes the whiplash effect. In this blog post we will explain this concept and outline some of the contributing factors to this issue. 

What is the bullwhip effect?

Bullwhip effect diagram

The bullwhip effect can be explained as an occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance then the sales to the end customer.  These irregular orders in the lower part of the supply chain develop to be more distinct higher up in the supply chain.  This variance can interrupt the smoothness of the supply chain process as each link in the supply chain will over or underestimate the product demand resulting in exaggerated fluctuations.

What contributes to the bullwhip effect?

There are many factors said to cause or contribute to the bullwhip effect in supply chains; the following list names a few:

  • Disorganization between each supply chain link; with ordering larger or smaller amounts of a product than is needed due to an over or under reaction to the supply chain beforehand.
  •  
  • Lack of communication between each link in the supply chain makes it difficult for processes to run smoothly.  Managers can perceive a product demand quite differently within different links of the supply chain and therefore order different quantities.
  • Free return policies; customers may intentionally overstate demands due to shortages and then cancel when the supply becomes adequate again,  without return forfeit retailers will continue to exaggerate their needs and cancel orders; resulting in excess material.
  •  
  • Order batching; companies may not immediately place an order with their supplier; often accumulating the demand first.  Companies may order weekly or even monthly.  This creates variability in the demand as there may for instance be a surge in demand at some stage followed by no demand after.
  •  
  • Price variations – special discounts and other cost changes can upset regular buying patterns; buyers want to take advantage on discounts offered during a short time period, this can cause uneven production and distorted demand information.
  • Demand information – relying on past demand information to estimate current demand information of a product does not take into account any fluctuations that may occur in demand over a period of time.
  •  

Example of the bullwhip effect

Let’s look at an example; the actual demand for a product and its materials start at the customer, however often the actual demand for a product gets distorted going down the supply chain. Let’s say that an actual demand from a customer is 8 units, the retailer may then order 10 units from the distributor; an extra 2 units are to ensure they don’t run out of floor stock.

Bullwhip effect example

The supplier then orders 20 units from the manufacturer; allowing them to buy in bulk so they have enough stock to guarantee timely shipment of goods to the retailer. The manufacturer then receives the order and then orders from their supplier in bulk; ordering 40 units to ensure economy of scale in production to meet demand.  Now 40 units have been produced for a demand of only 8 units; meaning the retailer will have to increase demand by dropping prices or finding more customers by marketing and advertising.

Although the bullwhip effect is a common problem for supply chain management understanding the causes of the bullwhip effect can help managers find strategies to alleviate the effect.  Hopefully this blog post has given you a simple understanding of the term.

 

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98 comments

   
    very easy language and including all aspects of bullwhip effect.
                    thanks

akmal
December 06, 2012 - 8:30 pm

Thanks…I will be appearing for my MIS exam in an hour. Helped me out to clear my bullwhip concept.   

Sachin
December 10, 2012 - 7:05 pm

Hi Sachin,

Glad it helped! Good luck with the exam! 

AAL Admin
December 11, 2012 - 10:35 am

best ever explanation…..   
thanxxxxx a ton

Sandeep Sharma
December 13, 2012 - 6:33 am

yesss, I find it as useful.
It serve my purpose properly .

Muqtadir
February 02, 2013 - 7:33 pm

Specific , Accurate & properly defined
Thankyou

Moazzam
February 18, 2013 - 8:03 pm

   
Nice one

RICHARD KWINJO
March 12, 2013 - 10:08 pm

   
    It was enough to turn my tad confusion in sound knowledge.
Exampled very well.

Gunjan soni
April 23, 2013 - 7:52 pm

   
Easy to understand a concept and it is going to help my upcoming uni Assessment.

thanks so much for.

jatinder singh
May 05, 2013 - 1:59 pm

Thanks! Layman terms language is sometimes the best language to explain to dummies

Raschelle
May 05, 2013 - 9:26 pm

   
Thank you for this clear explanation. helped me clear some doubts

Devina
May 13, 2013 - 5:21 am

   
    Love it, simply explained… Many thanks—

Matt
May 13, 2013 - 11:02 pm

Thank you, it’s more than enough.   

Azim
May 14, 2013 - 7:22 pm

Informative and explained in a very simple language. Thank you..   

DAYA
May 19, 2013 - 11:30 pm

thanks for preparing such a simple one, as it had cleared the basic concept which will going to help me in my Monthly paperz    

Ahsan
May 20, 2013 - 7:37 pm

   
Very useful and simple example

Natalie
May 21, 2013 - 3:08 pm

   
Thanks, This has helped with my studies for my University exam on the Bullwhip effect. Easy to read and understand.

Amelia
June 12, 2013 - 1:30 pm

   
    Very useful: On point, precise with simple English explanation.

SJ
June 25, 2013 - 8:54 pm

very well versed language used and helps in easy understanding concept
thank you    

naresha vasudev
June 30, 2013 - 5:47 pm

   
Good example, removed the complexity of the term.

partha
August 22, 2013 - 5:47 pm

The example that has been submitted is excellent and very clear .. thank you very much    

Emad
November 09, 2013 - 3:49 am

*sigh*  thank you for helping me understand this term!!

Ninah
November 29, 2013 - 10:58 pm

   
    I was confused getting a proper knowledge about bullwhip effect. The words are simple, easy and example given are very helpful to understand even by students who don’t have any experience.

I am really thank ful to you for this

Manish Ranjan
December 14, 2013 - 2:44 am

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Jaymie
January 05, 2014 - 3:12 am

   
    thank you so much for explaining in simple language and example smile

kshiteej Ramteke
February 18, 2014 - 2:24 pm

    waow ,..explained it so clearly easy to understand ..thankyu smile

shaziya
March 08, 2014 - 7:21 pm

    the definition did not help much. Although the example helped to clear the confusion.

Anne Steyn
March 09, 2014 - 11:57 pm

   
This is the first time I have encountered this word and it was so easy to understand it here.
Thanks !!

krishanr7
March 18, 2014 - 9:17 am

   
    thanks for the valuable infromation as this helped me to present my seminar on bull whip efect

renjith cr
March 18, 2014 - 3:18 pm

useful, and easily understandable. it helped me. i liked it especially due to example.

suryasolution.com
March 30, 2014 - 3:30 am

   
    too good.. really helped me to understand the concept and remember as well

Kalluri Hajira
April 02, 2014 - 4:39 am

simple to understand,,helped me a lot in understanding the bullwhip effect. thank u    

Nikolai
April 02, 2014 - 5:22 am

The clearest explanation I have found. Very well explained thank you.

Asif
April 27, 2014 - 7:13 am

very helpful. Thank you very much

nayyer
May 02, 2014 - 2:58 pm

   
    easy to understand n well explained

rija
May 11, 2014 - 9:04 pm

   
  Very concise ..very clear. .

bikram
May 13, 2014 - 1:37 am

   
    I finally understand the bullwhip effect! Yaay!

Madhav
May 16, 2014 - 9:23 pm

   
    Good Explanation

Rebisha
May 29, 2014 - 12:46 pm

   
Better understanding of bullwhip or whiplash effect which helped me for my exams

soumya
June 01, 2014 - 2:51 pm

   
  ” Great explanation, was studying for my supply chain module…going to use the illustration for the “bull whip effect”

Emett
June 12, 2014 - 10:00 pm

   
  Awesome, very beautifully explained, ....understood in first instance.

Sid
August 20, 2014 - 7:47 pm

   
    Very nicely explained, I have my exams in couple of hour, Thanks a lott for the help.

Rohan
August 20, 2014 - 7:49 pm

Nice explanation. this is more useful for my final exam.
      Thanks a lot….
   

Samitha
August 31, 2014 - 1:28 pm

   
    Yes useful

Vasu
September 23, 2014 - 6:43 pm

   
thank you you have fully explained the concept am now in the picture

cosmas kabondo
October 05, 2014 - 7:49 pm

Yes useful
Thanks    

Muhammad Faisal
November 09, 2014 - 1:46 pm

Nice presentation of the thoughts. This is the best ever explanation of bull whip effect.

I am a student and pursuing Masters in Business Administrator where it will be really helpful to apply such concepts.

Thanks you again smile

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Lovish Puri
November 22, 2014 - 1:30 am

   
it was very helpful for me ..thank u so much

deepika
December 01, 2014 - 10:10 pm

Good explanation with appropriate example in simple language….........good effort .   

Vinod Mishra
December 19, 2014 - 11:24 pm

   
    it was very helpful for me ..thank u so much sir

HARPREET SINGH
January 10, 2015 - 4:47 am

   
Precise, clear and self explanatory on bullwhip effect. I kindly appreciate.

Mahmood Ohm's
February 23, 2015 - 12:49 pm

   
    A very nice explaination. Please can any tell me how Bullwhip effect is studied mathematically.

Aqib Jalil
March 30, 2015 - 1:51 pm

   
    good n simple example…. thanks a lot….

suguna
April 27, 2015 - 5:35 pm

                       
Thanks. It was very useful and easy to understand.

chi emmanuel
June 24, 2015 - 10:11 pm

  this is amazing and I will pass by default! thanks a lot…  Ricardo , polytechnic of Namibia                    

Ricardo
July 23, 2015 - 7:00 pm

                       
  so amazing wow am very much encourage for the illustration. Initially I found it hard to conceptualize but now am smiling. thanks alot

onyando erick
July 31, 2015 - 7:31 pm

This is just perfect. . I spent all the night trying to understand this concept from my Operations Management book with a great failure,  now fully understood it from your great post. Thanks million.

Osman Mohamed
August 04, 2015 - 1:58 pm

It is really helpful..it explains very simply..but it gives the best..understandable..

Ayeaha
August 16, 2015 - 12:56 pm

                       
                      yes it was helpful , example is really good one.

shefali
August 27, 2015 - 12:56 am

very helpful with simple understanding. lovely              

Claudia Myers
September 18, 2015 - 9:30 am

fantastic example. understand easily.                       

lim
September 22, 2015 - 3:19 am

very easy language and relevant also.  good
                       

kuldeep
September 24, 2015 - 4:53 pm

                       
                      Wonderful article explained the concept in very comprehensive manner very easy to assimilate

Major varun
October 18, 2015 - 5:26 am

  I have tried to understand bullwhip effect, each effort ends up with technicalities… this is simple and straight to the point.

Please can you explain snowball effect for me…thanks                    

Eucharia Udeh
November 02, 2015 - 11:49 pm

                       
                      It helped me to undertand the concept of bullwhip effect.
Thank U

 

 

Tharindu
November 27, 2015 - 1:13 am

easy language
explained clearly
thankss                        

suraj tiwari
December 17, 2015 - 4:10 pm

                       
                      diagram is very help full.Thank you

samar khan
December 24, 2015 - 4:24 pm

    very clear, example made the concept to understand easily                    

lavanyaamarnath
January 25, 2016 - 4:58 pm

I Hve an interview in two days.it clears the bullwhip effect in me…       

GOWTHAM
February 11, 2016 - 1:13 am

I have a better understanding towards SCM now. Thanks a lot!                       

jingseng
February 17, 2016 - 10:24 am

  Extremely helpful. Thank you.                 

Saane Roa
March 16, 2016 - 8:53 am

                       
                  Nicely Explained. It helped for my SCM Exam.

Bibin Thomas
April 11, 2016 - 6:50 am

This is realistically easiest for anyone whose English is a second language. I have a final exam today and this is very useful for me right now. Thank you for sharing.       

Muhammad Shehzad
May 14, 2016 - 5:37 pm

wow i can now go and sit for the exam…. very easy and presice of all. Thanks

david ozil kiilu
July 04, 2016 - 6:14 pm

thank you
its really helpful in MAM exam because we don’t get notes easily          

ankita sharma
July 15, 2016 - 3:37 pm

This will really go along way in acing my November exams,... Thank you.

Vusumuzi Matshudula
September 10, 2016 - 1:32 am

well explained, simple language. Thanks a lot

amit
September 27, 2016 - 1:12 pm

Thank you so much ...smile Now i understood the concept..

Aastha Saluja
October 04, 2016 - 2:14 am

Bullwhip effect explanation is lucid and informative. By providing a simple example you have made the concept more understandable. Thank you.

Sharath R
October 24, 2016 - 5:33 am

    For the past four years studying for my honors degree in Logistics and SCM I struggled to understand what bullwhip effect is. This explanation alone has just cleared my doubt of what whiplash effect is.

Thank you very much                    

Martha Shigwedha
November 01, 2016 - 6:46 pm

Simple and striaght to the point.                   

Bulungisa
November 05, 2016 - 10:38 pm

    I have really learnt a lot thanks very much for your knowledge                    

kazhimbala knox
November 08, 2016 - 2:31 pm

I am not the type of person who usually writes comment, but since this website and the explanation really helps me, I would like to thank you personally. Thank you so much. Wish me luck for my final exam!                       

Indira
December 19, 2016 - 8:03 pm

                       
                      Explained in simple language. Thanks alot

Prasanth
December 22, 2016 - 3:46 am

Thanks! It help me a lot to understand the concept of the pullwhip effect.                       

Hana
February 02, 2017 - 12:34 pm

                  Extremely great , Thank you so much it help me understand bullwhip effect specially in supply chain management.     

Mabil Gony Biliu
February 28, 2017 - 10:07 pm

                       
    Thank you for good explanation. It is Easy to understand.

Koti
April 10, 2017 - 1:50 am

        Thank you for good explanation. It is easy to understand.               

Koti
April 10, 2017 - 1:54 am

Really informative site.!!

yousuf
May 05, 2017 - 6:33 pm

Great explanation!               

Notee
May 31, 2017 - 2:18 am

                       
  bull whip effect is caused by slight change in demand ( demand elasticity) thanks

Asindo mofat
August 26, 2017 - 8:30 pm

simple and easy-reading                        

sebastian
August 30, 2017 - 12:02 am

Perfect explanation.

Wan Meng Lau
September 18, 2017 - 12:57 am

                       
                      So cool! Will help for my certified internal Exam Thanks!!!

Diane
September 19, 2017 - 4:59 am

                       
  thanks, easy to understand the concept and relevant examples.

ruue
September 27, 2017 - 7:13 pm

                       
                      Wow!!! This is perfectly explained. Thanks.

Dan
October 10, 2017 - 11:49 pm

                        Too good, great job guys!

Rohan Hirani
October 23, 2017 - 10:45 pm

                       
            really wonderful thanks all

 

saeed
October 27, 2017 - 1:36 am

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