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Bullwhip Effect and The Importance of Forecasting

BULLWHIP EFFECT

  • It occurs when changes in consumer demand causes the companies in a supply chain to order more goods to meet the new demand.
  • It usually flows up the supply chain, starting with retailer, wholesaler, distributor, manufacturer and then raw material supplier.
  • Can be observed through most supply chains across several industries.
  • An occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance than sales to end customer.
These irregular orders in the lower part of the supply chain develop to be more distinct higher up in the supply chain.

SIGNIFICANCE OF FORECASTING

Businesses have to be on point when it comes to meeting the demand of its customers and ordering the supplies needed to do so. An overestimation or forecasting of demand leads to bloated inventory and high costs. Underestimating demand means many valued customers won't get the products they want. Supply chain management is the process by which a company ensures it has just enough supply to meet demand.

How to improve forecasts

  • Relying on data other than that being predicted and economic data.

  • Judgement Methods 

  • By a Panel of experts
  • Time-series methods (Trend analysis) 
  • Market Research Analysis
  • Casual Analysis

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