Quantifying the Bullwhip Effect in Supply Chains: A Stochastic Simulation Approach

Abstract

The Bullwhip Effect (BWE) occurs when orders made to suppliers have a bigger variation than sales to the buyer. This is a major concern that businesses are working on eliminating, as it has numerous side effects, such as excessive inventory, stock-outs, insufficient production, increased costs, etc. The new study adds to the literature by demonstrating how to quantify and assess the bullwhip impact on any supply chain. The results show that when consumer demand is unstable, the BWE is magnified. This was achieved by using the proposed formula which was based on an explanation and graph of the traditional BWE. A stochastic simulation based on a case study that replicates the behavior of a generic supply chain in a real-world market was used to evaluate the formula.