Answer to Question #277578 in Management for jean

Question

Explain the bullwhip effect. Why is it important for the managers to understand it? What can they do to reduce it?

Answer 1

Explain the bullwhip effect.

• Bullwhip effect is defined as the demand distortion that travels upstream in the supply chain from the retailer through to the wholesaler and manufacturer due to the variance of orders which may be larger than that of sales.
• It is a wasteful phenomenon that results in the potential loss of financial and physical resources.

Why is it important for the managers to understand it?

• Managers who understand the bullwhip effect will be better able to forecast demands and make well-educated decisions for maintaining a consistent and efficient supply chain.

What can they do to reduce it?

• The bullwhip effect in the supply chain can be reduced through shared knowledge with suppliers and customers. If members of the supply chain can determine what information is causing the overreactions this can be resolved. Communications and response times can be improved using modern technology.