Chapter 1
Modeling and Measuring the Bullwhip Effect
Li Chen and Hau L. Lee
AbstractThe bullwhip effect is a phenomenon commonly observed in industry. It
describes how the distortion of demand information in a supply chain amplifies de-
mand variance as it moves from consumption point up the supply chain to layers of
suppliers. The bullwhip effect has been a subject of intensive research activities. Re-
searchers have tried to address questions such as: What causes the bullwhip effect?
How would different types of demand signal processing in forecasting and replen-
ishment decisions affect the bullwhip effect? Can we explain the magnitude of the
bullwhip effect in terms of the characteristics of the product and the supply chain?
What is the magnitude of the bullwhip effect in practice, how does it differ across
industries and products, and how prevalent is the phenomenon? In this chapter, we
review both theoretical and empirical research done to address these questions, as
well as research done to identify important approaches and specifications that are
necessary to correctly measure and evaluate the true extent of the bullwhip effect.
1.1 Introduction
Demand variability and uncertainty is a driver of supply chain inventory. Manag-
ing supply chains can be a challenge when demand variability and uncertainty is
high. For a company in a supply chain consisting of multiple stages, each of which
L. Chen ()
Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca,
NY 14853, USA
e-mail:
[email protected]
H.L. Lee
Graduate School of Business, Stanford University, Stanford, CA 94305, USA
e-mail:
[email protected]
© Springer International Publishing Switzerland 2017
A.Y. Ha, C.S. Tang (eds.),Handbook of Information Exchange in Supply Chain
Management, Springer Series in Supply Chain Management 5,
DOI 10.1007/978-3-319-32441-8
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