In a supply chain for a typical consumer product, even when consumer sales do not seem to vary much,
there is pronounced variability in the retailers' orders to the wholesalers (see Figure 1). Orders to the
manufacturer and to the manufacturers' supplier spike even more. To solve the problem of distorted
information, companies need to first understand what creates the bullwhip effect so they can counteract it.
Innovative companies in different industries have found that they can control the bullwhip effect and
improve their supply chain performance by coordinating information and planning along the supply chain.
The Bullwhip Effect In Supply Chains 3
Causes of the Bullwhip Effect
Perhaps the best illustration of the bullwhip effect is the well-known "beer game."[3] In the game,
participants (students, managers, analysts, and so on) play the roles of customers, retailers, wholesalers,
and suppliers of a popular brand of beer. The participants cannot communicate with each other and must
make order decisions based only on orders from the next downstream player. The ordering patterns
share a common, recurring theme: the variabilities of an upstream site are always greater than those of
the downstream site, a simple, yet powerful illustration of the bullwhip effect. This amplified order
variability may be attributed to the players' irrational decision making. Indeed, Sterman's experiments
showed that human behavior, such as misconceptions about inventory and demand information