The Impact of Bullwhip Effect in Supply Chain Activities

Abstract

The goal of any supply chain is to get the right selection of goods and services to customers in the most efficient way possible. To meet this goal, each link along the supply chain must not only function as efficiently as possible; it must also coordinate and integrate with links both upstream and downstream in the chain. Supply chain performance depends on the actions taken by all of the members in the supply chain, while everyone supports in principle the objective of optimizing the supply chain’s performance, each firm’s primary objective is the optimization of its own performance. In this paper explores several challenges to supply chain coordination. The first challenge is the bullwhip effect: the tendency for demand variability to increase, often considerably, and the moving up the supply chain (from retailer, to distributor, to factory, to raw material suppliers, etc.). Given that variability in any form is problematic for effective operations, it is clear the bullwhip effect is not a desirable phenomenon. A second challenge to supply chain coordination comes from the inventive conflict among the supply chain’s independent firms: an action that maximizes one firm’s profit might not maximize another firm’s profit. Additional, in this research paper, self-serving behavior by each member of the supply chain can lead to less than optimal supply chain performance. In those situations, the firms in the supply chain can benefit from better operational coordination.