sc digest
June 18, 2021
Supply Chain Digest Flagship Newsletter


This Week in SCDigest

bullet The Pandemic Recovery and The Bullwhip Effect bullet SCDigest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet New Stock Index

New Chain Cartoon Caption Contest!

bullet Trivia      bullet Feedback
bullet New Expert Column bullet On Demand Videocasts



first thought


Supply Chain Graphic
of the Week
Are Inventories Really Growing?

This Week's Supply Chain

by the Numbers

US GDP to Soar in 2021 but Slow in Second Half,
Women Make Gains in Supply Chain Roles
US Manufacturing Shows Solid Gains in May but Still Down from Pre-Virus
Bridge Closure in Memphis Causing Chaos



May 12, 2021 Contest

Show Us Your Supply Chain Wit!

It's Back! SCDigest's Weekly

Supply Chain Stock Index



 This Week's SCDigest OnTarget Newsletter

Cartoon, Top SCDigest Stories of the Week

The Cold, Hard Facts - What to Consider When Replacing HCFC and HFC Refrigerants

Opteon™ refrigerants from Chemours

Read the Press Release

Dan Gilmore

Revisiting SCDigest's Framework on RFID Process Change

The 11 largest ocean container ships by container capacity all are owned by what carrier?
Answer Found at the
Bottom of the Page


The Pandemic Recovery and The Bullwhip Effect

One of - if not the top - most influential concepts in the supply chain is The Bullwhip Effect.

Though I assume known by a high percentage of SCDigest readers, as a quick summary The Bullwhip Effect describes how demand signals get distorted from the point of consumption back up through channel of distribution, manufacturing, components and materials, etc.



Stank, Goldsby and Saunders say that "just as the initial information reporting demand spikes takes time to reach upstream suppliers and manufacturers, so too does information about stabilizing demand."

Send us your
Feedback here

While end consumption, certainly for consumer goods, is often very steady, the upstream order patterns can show much wider variation - big peaks and valleys even though end demand is more constant.

The common results of this phenomenon: excessive inventory, inaccurate product forecasts, insufficient or excessive capacities, poor customer service due to unavailable products or long backlogs, uncertain production planning (i.e., excessive revisions), and high costs for corrections, such as for expedited shipments and overtime.

Dr. Hau Lee of Stanford University and colleagues V. Padmanabhan and Seungjin Whang put The Bullwhip Effect into prime time supply chain thinking with a 1997 article in MIT's Sloan Management Review, which featured insight from both Procter & Gamble and HP on the cause and effect.

The concept is called The Bullwhip Effect because the peak and valley order patterns and/or demand signals look something like the shape of a whip being coiled. (See graphic below).

P&G is credited with coming up with term.

The Bullwhip Effect Leads to Big Variance

in Order Patterns back Up the Supply Chain



See Full Size Image


In addition to capturing a critical supply chain challenge and opportunity, The Bullwhip Effect is the basis for the famous "Beer Game," in which participants play various roles in a beer supply chain.

Communication and collaboration are not allowed between supply chain stages, so players invariably suffer from the Bullwhip Effect-style challenges and wind up with two much or too little inventory.

So, The Bullwhip Effect is a hugely well-known and influential model, and helped propel Dr. Lee to top tier status among supply chain academics.

Except it really isn't The Bullwhip Effect. It's the Forrester Effect.

Noted MIT professor Jay Forrester first developed the insight in the early 1960s, and if fact, was the inventor of The Beer Game.

But somehow the principle took more than a three decade to really take root, catalyzed by Hau Lee's famous article. Maybe only a few companies, let alone whole supply chains, were really ready for the concept when it was created. Maybe The Bullwhip Effect is more memorable than The Forrester Effect.

Why this trip down Bullwhip memory lane? Because earlier this week, Ted Stank, Tom Goldsby, and Lance Saunders, all from the University of Tennessee, published a guest column in the Wall Street Journal saying manufacturers need to be careful about falling victim to The Bullwhip Effect here in this highly volatile post-pandemic environment.

With demand surging in many categories of products in both consumer and business markets, the natural reaction for many companies is to "just make more," the authors note. But they caution that they could fall into a Bullwhip Effect situation.

Stank, Goldsby and Saunders say that "just as the initial information reporting demand spikes takes time to reach upstream suppliers and manufacturers, so too does information about stabilizing demand."

The Bullwhip Effect in part happens due to long lead times to build capacity and significantly increase output. But, the authors say, by the time companies reach peak capacity, demand may have stabilized at lower levels, leaving firms with excessive inventory and assets.

They add that "The risk of overbuilding is highest in industries that may see demand surge as society reopens, such as tourism, dining and entertainment. Data indicate that consumer spending is already shifting away from "lockdown" spending on things such as home entertainment, workout and home-office equipment, and food-delivery services."

Companies, they say, should closely analyze any sharp upticks in demand to avoid amplifying false-demand signals, noting that in the early days of the pandemic, toilet paper demand at retail was up over 700% even though consumer usage was little changed.

The WSJ column takes a longer term view of The Bullwhip Effect relative to adding capacity than The Beer Game and most discussions on The Bullwhip Effect, which are more short term focused on how much inventory to build in the here and now (and how order pattern variability negatively impacts manufacturing and logistics planning).

But the real takeaway here is that all these years later, while The Bullwhip Effect has been modestly tamed in many supply chains - forgetting the principles can still lead to a host of supply chains problems.

What do you think of the Bullwhip discussion? Is it a risk for companies now? Let us know your thought at the Feedback section below.




On Demand Videocast:

Understanding Distributed Order Management

Highlights from the New "Little Book of Distributed Order Management"

In this outstanding Videocast, we'll discuss DOM, based on the new Little Book of Distributed Order Management, written by our two Videocast presenters.

Featuring Dan Gilmore, Editor along with Satish Kumar, VP Client Services, Softeon

Now Available On Demand

On Demand Videocast:

The Grain Drain: Large-Scale Grain Port Terminal Optimization

The Constraints and Challenges of Planning and Implementing Port Operations

This videocast will provide a walkthrough of two ways to formulate a MIP, present an example port, and discuss port operations.

Featuring Dan Gilmore, Editor along with Dr. Evan Shellshear, Head of Analytics, Biarri.

Now Available On Demand

On Demand Videocast:

A Blueprint for WMS Implementation Success

If You Want a Successful WMS Project, You will Find the Blueprint in this Excellent Broadcast

This videocast lays out the keys to ensuring your WMS implementation goes smoothly, involves minimal pain, and accelerates time to value.

Featuring Dan Gilmore, Editor along with Todd Kovi of Radix Consulting and Dinesh Dongre of Softeon.

Now Available On Demand


Feedback will return next week.


Q: The 11 largest ocean container ships by container capacity all are owned by what carrier?


A: South Korea's HMM

Copyright SupplyChainDigest 2003-2021. All Rights Reserved.
To Unsubscribe from Supply Chain Digest emails: Click Here

This email was sent by SupplyChainDigest
PO Box 714, Springboro, Ohio 45066