Supply chain cash-flow bullwhip effect: An empirical investigation

Abstract

The cashflow bullwhip effect (CFB) is the amplification of working capital variance along a supply chain, analogous to the bullwhip effect (BWE) for order variance. High CFB is an indication of inefficiency in working capital management. This study investigates the occurrence of CFB and BWE in a sample of 763 U.S. public companies from 2010 to 2019. The results indicate that CFB is experienced by 37% of retailing, 43% of wholesaling, and 81% of manufacturing firms. Additionally, firms with conservative payment policies have smaller CFB and BWE, while high liquidity ratios are associated with smaller BWE. Predictability in demand seasonality is linked with smaller CFB and BWE, while high lead time is associated with larger CFB and BWE. Higher demand autocorrelation is associated with larger BWE. This new knowledge on the associations between CFB and BWE with firm attributes can help inform important decisions, including those made at the firm, industry, or government policy level.