The Bull Whip Effect

Why effective Supply chain management is crucial

In today’s economy all companies of all sizes are reliant on parts being shipped and distributed by international sources. Globalization has added to the complexity when it comes to outsourcing and importing goods, making supply coordination ever more difficult to manage.
As companies are so reliant on many materials supplied by diverse companies to ultimately make their final product, it is critical that you have control over your link in the supply chain.  No matter how experienced you may be within supply and logistics, missing one small part can completely breakdown the supply chain and as a result stop companies trading with you, or if you are the retailer, production has stopped so consumers cannot purchase your product.

One effect of poor supply chain management is the bullwhip effect which terrifies many in this industry.

“Effective training to employees provides a return of several times its actual cost and is critical to their ability to work efficiently and effectively, and ensure your competitiveness” (Dupre’ 2012)


Please look into the below if you work in any aspect of supply chain as Phoenix offer a wide variety of management courses to ensure you’re making the correct decisions.

Institute of supply chain management courses 

Phoenix Training and development are training professionals within supply chain management and offer a wide variety of courses to help you meet your business and own personal objectives.

Phoenix’s institute of supply chain management training course is a range of qualifications which enables you, no matter what discipline of supply chain management you work in, to achieve a relevant qualification that is tailored to your specific career path.

A wide range of optional units are available to which gives you the ability to study one discipline within supply chain management i.e. logistics or purchasing or choose a range of disciplines to develop and demonstrate skills and knowledge in a number of areas

For further details of these programmes please visit our website www.phoenixtd.co.uk or contact info@phoenixtd.co.uk or phone 0191 2211559 to discuss your training and development needs

What is the 'bullwhip' effect?  

The bullwhip effect occurs when there is an unexpected change in consumer demand which forces companies to order more stock to meet their consumer needs. Although it sounds simple enough, supply chain is a complex process and 'ordering more stock' puts immense pressure on the previous links in the chain, if they exceed their forecasts and capabilities to supply the stock.  

As it is usually the consumer who drives this change in purchasing behavior, the bullwhip effect usually travels up the supply chain, starting with the retailer then impacting the wholesaler, supplier, manufacturer and finally the raw materials supplier.

 Putting it in simple terms...

• A Retailer on average sells around x amount of shampoo on average per month. They then place their orders with the supplier to replenish their shelves.

• The supplier knows the amount of stock the retailer typically orders, therefore they set the forecast with the manufacturing plant, to produce enough stock for them to supply to the retailer.

• The manufacturing plant then forecasts the amount of raw materials they need to be able to make the number of products for the supplier to deliver to the retailer.

• The raw materials supplier then forecasts their machinery, man power, costs and capabilities to produce the raw materials to give to the manufacturing plant. 

So... what happens when the demand changes?

 In a celebrity interview the shampoo is mentioned- many viewers hear / see that the brand of shampoo is used by a celebrity, and as a result the demand of the product increases.

• The retailer receives its typical delivery of shampoo but the demand of the product exceeds what they have ordered. The retailer goes out of stock so places a large order with the supplier to try meet consumer demand, but their order exceeds the supplier's forecast.

• The supplier now requires the manufacturing plant to produce more stock to allow them to supply the retailer's order in full.

• The manufacturing plant cannot produce the large order without the raw materials, so they place a larger order with the company that supplies the materials to make the shampoo.

• The raw material supplier has not forecasted to produce the amount of materials and therefore does not have the capability to support the new demand. 

In turn, each of the links in the chain, the retailer, the supplier, the manufacturing plant and the raw materials supplier all go out of stock and production of the shampoo does not meet consumer demand.  This can result in companies changing suppliers, or consumers taking their business elsewhere to competing retailers. 

!! WHICH IS WHY EFFECTIVE SUPPLY CHAIN MANAGEMENT IS SO IMPORTANT !! 

For more on supply chain management courses 

Phoenix T&D