Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

2007

Publication Source

Manufacturing & Service Operations Management

Volume

9

Issue

4

Start Page

457

Last Page

479

DOI

10.1287/msom.1060.0149

Abstract

The bullwhip effect is the phenomenon of increasing demand variability in the supply chain from downstream echelons (retail) to upstream echelons (manufacturing). The objective of this study is to document the strength of the bullwhip effect in industry-level U.S. data. In particular, we say an industry exhibits the bullwhip effect if the variance of the inflow of material to the industry (what macroeconomists often refer to as the variance of an industry's “production”) is greater than the variance of the industry's sales. We find that wholesale industries exhibit a bullwhip effect, but retail industries generally do not exhibit the effect, nor do most manufacturing industries. Furthermore, we observe that manufacturing industries do not have substantially greater demand volatility than retail industries. Based on theoretical explanations for observing or not observing demand amplification, we are able to explain a substantial portion of the heterogeneity in the degree to which industries exhibit the bullwhip effect. In particular, the less seasonal an industry's demand, the more likely the industry amplifies volatility—highly seasonal industries tend to smooth demand volatility whereas nonseasonal industries tend to amplify.

Keywords

bullwhip effect, production smoothing, supply chain management, volatility

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Date Posted: 27 November 2017

This document has been peer reviewed.