BULLWHIP EFFECT

May 3, 2010

BULLWHIP EFFECT:

Bullwhip Effect is a phenomenon observed in forcast driven distribution channels. In order to have the fitting amount of inventory, forecasts are done to estimate the future customer demand.

Companies have to invest in extra capacity to meet the high variable demand. It is called “safety stock”. If we look at the whole supply chain, we observe that, starting with end-consumer up to raw materials supplier, each participant has a greater need for safety stock as they have greater observed variations in demand.

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