Published in · 2 min read · Sep 1, 2023
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It is the fluctuation caused by the coordination problems of the stakeholders within the Supply Chain. MIT Sloan School of Management Lecturer Jay Wright Forrester explained the concept of the Whip Effect in his book Industrial Dynamics (1961) as a result of his System Dynamics research in 1960.
Based on the example that the slight fluctuation in the whip stroke creates much larger oscillations in the later stages, a +/- 5% fluctuation in the Supply Chain produces up to 40% irregularity in the downstream stakeholders.
Causes of the Whip Effect;
- (Relative) Slow data transfer between internal and external stakeholders
- The excess accuracy deviations of the transmitted data
- Lack of feedback
- Insufficient stock policies (Minimum Stock, etc.)
- Frequency of urgent orders
- Fear of being out of stock
- Forecast errors (Continuous or periodic uncertainties)
- Fluctuations in logistics operations (damage, delivery time, etc.)
- Too fast or slow adaptation of inventory control mechanisms
- Incorrect setting of lot sizes
- Inadequate implementation of (JIT) Just In Time
- Fluctuation in demand due to price fluctuations
The results of the Whip Effect;
- Increased inventory holding costs due to fear of being out of stock
- Increased logistics and handling costs due to repetitive orders
- Lost trust as a result of inadequate customer service (internal and external)
- Loss of profit
Measures to be taken against the Bullwhip Effect;
- Fast and accurate data sharing with all stakeholders in the supply chain (Internal and external stakeholders)
- Review of inventory management (Minimum Stock, etc.)
- Updating forecasting and decision support systems
- Creating a structure that can predict price fluctuations more clearly
- Correct setting of lot sizes
- Reducing the stock on the road and controlling the logistics organization
- Continuously controlled action with the foresight that the Bullwhip Effect will never disappear.
To better understand how the Bullwhip Effect problem caused by the weakness of communication and decision support systems creates results in the Supply Chain, you can both have a pleasant time by playing the “Beer Game” game and better understand the causes and consequences of the Bullwhip Effect by visualizing.
Links to the Beer Game game where the Bullwhip Effect is simulated;
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