Supply Chain Management: An International Journal

Want to reduce the bullwhip? Measure it. Heres how

Ming Jin, Nicole DeHoratius, Glen Schmidt,
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 Want to reduce the bullwhip? Measure it.
Heres how
Ming Jin
Department of Operations and Information Systems, David Eccles School of Business,
University of Utah, Salt Lake City, Utah, USA
Nicole DeHoratius
Booth School of Business, University of Chicago, Chicago, Illinois, USA, and
Glen Schmidt
Department of Operations and Information Systems, David Eccles School of Business,
University of Utah, Salt Lake City, Utah, USA

Abstract
Purpose The popular beer game illustrates the bullwhip effect where a small perturbation in downstream demand can create wild swings in
Downloaded by Swinburne University of Technology At 09:27 24 August 2017 (PT)

upstream product flows. The purpose of this paper is to present a methodical framework to measure the bullwhip effect and evaluate its impact.
Design/methodology/approach This paper illustrates a framework using SKU-level data from an industry-leading manufacturer, its distributors,
end-users and suppliers.
Findings Firms benefit from tracking multiple intra-firm bullwhips and from tracking bullwhips pertinent to specific products, specific suppliers
and specific customers. The framework presented in this paper enables managers to pinpoint bullwhip sources and mitigate bullwhip effects.
Research limitations/implications This paper presents a framework for methodically measuring and tracking intra-firm and inter-firm bullwhips.
Practical implications A disconnect exists between what is known and taught regarding the bullwhip effect and how it is actually tracked and
managed in practice. This paper aims to reduce this gap. For the various products analyzed herein, the authors show how using this framework has
the potential to reduce delivered product cost by 2 to 15 per cent.
Social implications Properly managing the bullwhip leads to lower inventories and potentially lower product prices while simultaneously
increasing firm profits.
Originality/value This paper presents a novel approach to systematically tracking intra-firm bullwhips along with bullwhips specific to a given
supplier or customer.
Keywords Tracking, Supply-chain management, Bullwhip effect
Paper type Research paper

1. Introduction A firm exhibits a bullwhip if the variability in its orders

placed amplifies the variability in its orders received. The
The bullwhip effect is a phenomenon whereby a small
reverse effect is called smoothing. The term bullwhip may
perturbation in downstream demand creates substantial
be used generically to allow for either amplification or
swings in upstream product flows (i.e. orders placed to
smoothing. While the conventional bullwhip calculation
upstream suppliers exhibit more variability than orders
measures the inter-firm bullwhip, Jin et al. (2016) present a
received from downstream customers). The beer (or root
framework to decompose the inter-firm bullwhip into three
beer) game illustrates the bullwhip effect and is a staple
intra-firm bullwhips:
offering within business education programs, as is
The shipment bullwhip is the difference between the
classroom instruction on how to mitigate the effect. Yet, in
variability in the order fulfillment stream (i.e. shipments)
our experience, many managers do not properly track and
and variability in the stream of orders received from
manage the bullwhip. We present a rigorous bullwhip
customers.
measurement framework and illustrate our approach using
The manufacturing bullwhip is the difference between the
SKU-level data from an industry-leading manufacturer
variability in the manufacturing stream and variability in
along with data from its distributors and suppliers.
the shipment stream.

The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1359-8546.htm The authors would like to thank Dr. Beverly Wagner and two anonymous
reviewers for their support and constructive comments.

Supply Chain Management: An International Journal Received 1 November 2016

22/4 (2017) 297304 Revised 26 February 2017
Emerald Publishing Limited [ISSN 1359-8546] 22 May 2017
[DOI 10.1108/SCM-02-2017-0088] Accepted 23 May 2017

297
 Want to reduce the bullwhip?
Ming Jin, Nicole DeHoratius and Glen Schmidt
The order bullwhip is the difference between the variability
in the stream of orders placed to supplier(s) and variability
in the manufacturing stream.
A key contribution of our work is to delineate how a firm can
methodically track its three intra-firm bullwhips, along with
various intra-specific bullwhips which are specific to a given
product(s) and/or a given customer(s) and/or a given
supplier(s). We worked with one firm that, after gaining a
better understanding of its inventory fluctuations (as reflected
in its intra-firm and intra-specific bullwhips), changed some of
its operations practices to reduce such fluctuations. According
to our calculations, its bullwhip mitigation efforts had the
potential, across its portfolio of products, to reduce delivered
product cost by 2 to 15 per cent.
Before detailing our three intra-firm bullwhip measures in
Section 3, we offer in Section 2 a brief literature review. Our
discussion in Section 3 includes several numerical examples
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from a leading manufacturing firm where we show the relative
importance and interrelationships among the various
intra-firm bullwhip measures. We discuss in Section 4
additional factors the firm should consider in measuring its
bullwhip. A summary and discussion follow in Section 5.
2. Brief literature review
In the 1950s, Forrester (1961) studied demand fluctuations at
a GE appliance plant, leading to the term the Forrester
effect (a precursor to the term bullwhip effect) and to
Forresters development of the field of system dynamics along
with his creation of the beer game. In the 1980s, economists
explored how a demand signal changes as one progresses
upstream in a supply chain (Blanchard, 1983; Miron and
Zeldes, 1988; Rossana, 1998; Caplin, 1985; Blinder, 1986;
Kahn, 1987; Fair, 1989; Ghali, 1987). Much of their work
centered on how (and when) inventory buffers smooth
production relative to demand an effect that counters the
bullwhip.
Researchers credit Lee et al. (1997) with introducing the
bullwhip phenomenon into the operations management (OM)
literature. Lee et al. (1997) identify four root causes of the
bullwhip: demand signal processing, price fluctuation, order
batching and rationing. Subsequent OM research focuses on
measuring the magnitude and extent of the bullwhip as well as
identifying its causes. A variety of methodological approaches
can be found in this research including analytical models
(Cachon, 1999; Chen et al., 2000, 2017; Dejonckheere et al.,
2003; Gilbert, 2005; Li et al., 2006; Chen and Lee, 2012),
Figure 1 Firms shipment (left), manufacturing (middle), and order (right) bullwhips for all cakes
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empirical analyses (Anderson et al., 2000; Fransoo and
Wouters, 2000; Svensson, 2003; Terwiesch et al., 2005; Lai,
2005; Cachon et al., 2007; Bray and Mendelson, 2012; Duan
et al., 2015; Jin et al., 2016), simulation modelling
(Campuzano-Bolarn et al., 2011, Campuzano-Bolarn et al.,
2013) and behavioral experiments (Croson and Donohue,
2006; Cantor and Katok, 2012). Space is too limited to
effectively summarize this literature in full. We offer managers
a framework that can be used to translate this research into
action. We demonstrate how managers can methodically track
bullwhips, recognizing that tracking is the initial step to any
future bullwhip-reduction efforts. We focus the remainder of
this paper on delineating this framework.
3. How to measure the three component
bullwhips
We obtained data from a manufacturing firm that leads its
industry. To maintain the confidentiality of the firm, we
present our data as if the firm makes cake mixes and use the
disguised name Pinocchio Fudge (PF). PF produces multiple
flavors of cake mixes such as triple chocolate, red velvet, angel
food and so forth. The firm sells its cake mixes through a
number of distributors (fewer than ten). It receives orders
from distributors, manufactures the product and places raw
material orders to its suppliers, all based on a one-month
planning period.
Figure 1 presents the information and material flow streams
within the PF facility that makes all cake flavors (see Table I
for detailed data). Starting in the left-hand frame of Figure 1,
we plot two of PFs flow streams:
1 the cumulative set of orders received from customers; and
2 the aggregate stream of shipments to customers.
The shipments are of course in response to the orders. The
y-axis plots the volumes by month. All volumes are in
thousands and as such can be thought of as thousands of boxes
of cake mix. Qualitatively, we observe a smoothing (and not an
amplification) effect. In other words, the shipment stream is a
bit smoother than the order received stream. However, such
Table I Flow stream volumes as plotted in Figure 1 (thousands)
Shipments
Distributors from Manufacturer Manufacturer
orders manufacturer production orders
Mean 290 286 302 314
SD 206 132 74 1,367
 Want to reduce the bullwhip?
Ming Jin, Nicole DeHoratius and Glen Schmidt
smoothing is also possible when a firm elects not to fill all
orders immediately. For example, it is possible that PF
decided to withhold a full shipment to one distributor in
anticipation of future orders from a preferred distributor. It is
also plausible that this smoothing is because PF lacks product.
Note that the exact bullwhip number will be quantified
shortly.
The middle frame in Figure 1 duplicates the shipment plot
from the left frame and compares it to PFs production (i.e.
manufacturing) flow stream. Note that the manufacturing
flow stream is less volatile than the shipment stream (again, to
be quantified shortly). The right-hand frame shows the raw
material orders placed by PF. We scale the orders to reflect the
equivalent number of cake mixes they will yield. For example,
if an order is for 10,000 pounds of flour, which will produce
20,000 boxes of cake mix, then we plot the volume as an order
for 20,000 boxes-worth of flour.
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The three frames in Figure 1 are akin to a statistical
process control (SPC) chart in that they track a given
measure over time. Figure 1 effectively depicts whether
each flow is smoothed or amplified. Note that all plots have
roughly the same mean of 300 (over the long run, flows in
equal flows out), but the plots reveal substantial differences
in flow variability. To better understand these variabilities,
we quantify the bullwhip or smoothing that occurs at each
step.
3.1 Quantify the three intra-firm (component)
bullwhips
We depict in the upper-left portion of Figure 2 our focal firm
(F) receiving orders from its downstream firm(s). This is the
first (most-downstream) stage. The variation in this demand
stream is denoted by VFD. The superscript F refers to the focal
firm and the subscript D denotes that this parameter is the
variability in the demand stream. In academic papers,
researchers often measure such variability with variance.
However, in a practitioner setting, we suggest using the
coefficient of variation (CV), defined as the standard deviation
divided by the mean, to allow for comparison across flow
streams with differing means.
Firm F may choose not to (or may not be able to) fulfill
demands immediately. Therefore, its shipments to the
downstream firm may not exactly match its demand. We denote
Figure 2 Decomposing the focal firms inter-firm bullwhip into three intra-firm (component) bullwhips (the shipment, manufacturing and order
bullwhips)
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the CV in shipments (at Stage 2) by VSF (the superscript denoting
the focal firm F and the subscript S referring to the shipment
stream). We define the difference VSF VFD to be the firms
shipment bullwhip, denoted by BSF. We consider demand to be
amplified when BSF takes on values greater than zero
(BSF VSF VFD 0) and smoothed when BSF takes on values less
than zero (BSF 0).
If firm F holds finished goods inventory at any point in time
(as denoted by the lower-left triangle in Figure 2), then its
manufacturing output stream (at Stage 3) will not necessarily
match its shipment stream. For example, demand may be
seasonal and firm F may overproduce (building inventory) in
periods of slack demand and under-produce (shipping from
inventory) in periods of high demand (Cachon et al., 2007 and
Bray and Mendelson, 2015). Batch manufacturing and
uncertainties may also contribute to a manufacturing bullwhip
within the firm, defined as BM F
VMF
VSF, where VM F
denotes
the CV in manufacturing. Again, there may be amplification
(BMF
0) or smoothing (BM F
0) of shipments.
The use of raw materials in manufacturing at Stage 3
induces replenishment orders at Stage 4. The order stream
may not exactly follow the manufacturing stream. For
example, a supplier may offer promotions that entice firm F to
forward-buy. We denote the CV in orders placed by firm F by
VOF and define the order bullwhip as BOF VOF VM F
.
Amplification (BO 0) or smoothing (BO 0) may be
F F
observed.
As previously noted, the conventional undecomposed
inter-firm bullwhip (which we denote by BF) is the CV in the
orders placed minus the CV in orders received. It is the sum of
the three intra-firm bullwhips:
BF VOF VFD VSF VFD VM
F
VSF
VO VM BS BM BOF
F F F F
(1)
The same setup applies for firm Fs supplier one-level upstream
in the supply chain. Using a superscript of U to denote Fs
upstream supplier, we have, analogous to Equation (1):
BU VOU VUD VSU VUD VM
U
VSU
VOU VM U
BSU BM U
BOU
 Want to reduce the bullwhip?
Ming Jin, Nicole DeHoratius and Glen Schmidt
At the downstream customer, we use a D superscript:
BD VOD VDD VSD VDD VM
D
VSD
VO VM BS BM BOD
D D D D
Note that the inflows to any firm (in this case, to the focal firm
at Stage 5 in Figure 2) are the result of shipments received
from the upstream supplier(s). The supplier(s) are, in turn,
responding to the orders placed by the focal firm (i.e. the
orders they received). If there is only one upstream supplier,
then VOF VUD. However, if there are multiple suppliers, then
the variability in the inflows is some aggregation of the
shipments of the multiple suppliers. We denote the
aggregation of inflows (subscript I ) at the focal firm
(superscript F) by VIF and define the focal firms inflow
bullwhip as BIF VIF VOF. Note that the inflow bullwhip is
not one of the three intra-firm bullwhips a firm has no
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(direct) control over the inflow bullwhip because it is
determined by the shipments of the supplier firms?
Nevertheless, a firm may still want to track its inflow bullwhip
in preparation for discussions with suppliers. For more detail,
see Section 4.
This decomposition framework allows managers to pinpoint
where the bullwhip is created within their own firm and
between firms. Specifically, by looking at each firms three
component bullwhips, BSF, BM F
and BOF, a manager can identify
whether the amplification (or smoothing) occurs in shipping
and/or manufacturing and/or ordering within each firm.
Absent the measurement and monitoring of these component
bullwhips, managers do not know exactly where bullwhips
exist and are thus limited in their ability to mitigate them.
Referring back to Figure 1, we find that PFs shipment
bullwhip is BSF 0.25 (the negative sign confirms
smoothing). The firms manufacturing bullwhip is BM F
0.22 (again, indicating smoothing), and its order bullwhip is
BOF 4.11 (i.e. amplification). By decomposing the bullwhip
into its three intra-firm bullwhips, PF now knows where to
start in reducing the bullwhip. In this case, the order bullwhip
is the most obvious place to start taking action. This is not to
claim that interactions with downstream customers and
upstream suppliers do not merit additional attention (see
Section 4 for more detail) but merely suggests prioritizing
efforts based on the magnitude of the component bullwhips.
4. Measure intra-specific bullwhips (Product,
customer and/or supplier-specific)
Figures 1 and 2 represent all information and material
outflows from a firm and all information and material inflows
into that firm. However, the customer of a focal firm, for
example, may not really care about the entire set of bullwhip
measures associated with the focal firm. Instead, the customer
may only care about the bullwhips specific to its orders (i.e.
the focal firms shipments to that specific customer). Similarly,
a supplier may focus on the variability in orders it receives
from the focal firm rather than care about the variability in all
the focal firms orders. And, within an organization, the
primary interest of a production-line manager may be the
bullwhip(s) associated with a specific production line rather
than the agglomerated manufacturing bullwhip. Thus,
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managers may want to track select intra-specific bullwhips.
These are shipment, manufacturing and order bullwhips that
are specific to a given product and/or customer and/or supplier
and to measure them using the framework shown in Figure 3.
Consider a single product of PF (e.g. boxes of angel food
cake mix). The product is sold to multiple customers (in this
case, distributors), including Distributor D. Starting on the far
left of Figure 3, we denote the CV in angel food cake orders
placed by Distributor D by VOD (Stage 1 in the upper left of
Figure 3) and denote the inflows of boxes of angel food cake
to D by VID (Stage 2). We plot these orders and inflows in the
left frame of Figure 4 and report their mean and standard
deviation in Table II. We denote PFs shipment bullwhip that
is specific to distributor D by BSF, D. As PFs shipments to D
become Ds inflows, we calculate this shipment bullwhip as
BSF, D VID VOD. In Figure 4, the shipment bullwhip specific
to angel food cake and specific to D is BSF, D 0.07.
Continuing with our angel food cake example, PF
aggregates orders from D with those from other customers
to create its aggregate demand for angel food cake, with a
CV of VFD (Stage 3 in Figure 3). Similarly, PF aggregates
shipments of angel food cake to D with shipments to other
distributors to create its aggregate shipments of angel food
cakes, with a CV of VSF (Stage 4 in Figure 3). We show
these aggregate order and shipment streams in the middle
frame of Figure 4. In this specific case, Fs shipment
bullwhip aggregated across all customers, BSF 0.06, is
not too different from Fs shipment bullwhip specific to
Distributor D, BSF, D 0.07.
PF manufactures angel food cake in batches. It does not
manufacture a batch in direct response to every customers
(distributors) order but rather schedules its production in
response to the aggregation of orders for angel food cake from
all distributors. Thus, it is not meaningful to try to plot a
manufacturing flow stream for angel food cake that is specific
to Distributor D. Similarly, it is not meaningful to calculate
this specific manufacturing bullwhip. Instead, the right frame
of Figure 4 shows the manufacturing flow stream for all angel
food cake production (with a coefficient of variation of VmF;
Stage 5 in Figure 3) compared to the shipment flow stream.
With an observed BmF equal to 0.21, an amplification in
manufacturing exists that seems attributable to the batch
production policy.
PF aggregates production volumes for angel food cake with
volumes of other sponge cakes. We create PFs
aggregate coefficient of variation VM F
(see Stage 6 in Figure 3).
F
Here, we use a capital M in VM to distinguish the number for
all sponge cakes from the number applicable to angel food
F
cake alone. Comparing this coefficient of variation VM with
the coefficient of variation for the aggregate of all sponge cake
shipments, we find a manufacturing bullwhip (smoothing)
of 0.15. In other words, while the production of angel food
cake results in a bullwhip of 0.21 because of batch
manufacturing, the pooling of production across all types of
sponge cakes (each of which is produced in batches) results in,
the aggregate, a negative bullwhip. Furthermore, the
pooling of production of sponge cakes with other types of
cakes results in even more smoothing, as evidenced by a
bullwhip (smoothing) of 0.22 (see the middle frame of
Figure 1).
 Want to reduce the bullwhip? Supply Chain Management: An International Journal
Ming Jin, Nicole DeHoratius and Glen Schmidt Volume 22 Number 4 2017 297304

Figure 3 Disaggregating data into bullwhips specific to a product and/or customer and/or supplier
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Figure 4 Shipment bullwhip specific to angel food cake and only Distributor D (left) and to angel food cake (all distributors, middle) and the
manufacturing bullwhip specific to angel food (right)
10 50 50
Dist D, Angel food. All dist., Angel food. All dist., Angel food.
Shipment bullwhip: Shipment bullwhip: Manufacturing bullwhip:
8 40 40
Distributor Ds orders to mfg.
Mfgs production
Shipments from mfg. Distributors orders to mfg.
to distributor D Shipments from mfg.
6 30 30
Shipments from mfg. to distributors
Volume

Volume

Volume

to distributors

4 20 20

2 10 10

0 0 0
Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014

Table II Flow stream volumes as plotted in Figure 4 (thousands) ingredient (ingredient S) in its angel food cake and in
Shipments Shipments all sponge cakes. It does not place an order for the special
from from ingredient in direct response to every manufacturing batch
Distributor manufacturer Distributors manufacturer Manufacturer of angel food cake. Instead, it places orders in response to
D orders to distributor orders to all production
the aggregation of production for all sponge cakes. Thus, it
Mean 1.62 1.62 6.01 5.97 8.60 is not meaningful to plot an order flow stream that applies
SD 0.996 0.887 3.78 3.40 6.70 to orders placed to suppliers for ingredient S as used in
angel food cake specifically. Similarly, it is not meaningful
to calculate this specific order bullwhip. Instead, we
Note that each intra-specific bullwhip measure has to identify calculate the CV for the order flow stream for ingredient S
to what it is specific. For example, in the left frame of Figure as used in all sponge cakes, VOF (see Stage 7 in Figure 3) and
4, we plotted the intra-specific shipment bullwhip as it applies compare it to the CV of the manufacturing flow stream, VM F
,
to Distributor D and angel food cake; in the middle frame, we finding amplification in ordering of BO 2.00. The focal
F

plotted the intra-specific shipment bullwhip as it applies to all firm creates a substantial amplification in ordering of
Distributors and (all) angel food cake; and in the right frame, ingredient S.
we plotted the intra-specific manufacturing bullwhip as it Note that not all conceivable intra-specific bullwhips are
applies to all angel food cake. Note that there is no meaningful or necessary. For example, say the manufacturer
distributor-specific manufacturing bullwhip that applies to ships angel food cake to multiple distributors, including
angel food cake because production serves all distributors, not Distributor D. Further, say the manufacturer holds only one
specific distributors. inventory pool of angel food cake. While one might imagine
Similarly, we calculate intra-specific bullwhips related to calculating a manufacturing bullwhip specific to product shipped
upstream suppliers. For example, PF uses a special to Distributor D, we do not see this number as particularly

301
 Want to reduce the bullwhip?
Ming Jin, Nicole DeHoratius and Glen Schmidt
meaningful or necessary because the manufacturer decides how
much to produce based on aggregate shipments as opposed to
shipments specifically to Distributor D.
4.1 Discuss customer- and supplier-specific bullwhips
with supply chain partners
When PF talks to an individual distributor (customer) or
supplier, the two firms can only work on reducing the bullwhip
between themselves they cannot (independently) address the
bullwhips involving other firms. Thus, PF may want to share
intra-specific bullwhips with each supply chain partner. For
example, say PF is preparing for discussions with Distributor D.
PF might look at the flow streams and shipment bullwhip
measures specific to each product (such as angel food cake) and
for each product group (such as sponge cakes), and for all
products in aggregate. In each case, PF found the shipment
bullwhip to be negative, indicating a smoothing of shipments
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relative to orders.
While shipment smoothing is presumably a good thing, PF
found the order flow stream from Distributor D to be extremely
variable compared to Ds flow streams of shipments to end-users
which D shared with PF. Recognizing this discrepancy, PF
examined its own practices to determine the root cause and
discovered its very own routine price increases drove these order
patterns. The distributor was stocking up on product just before
the price increase (i.e. forward buying). This observation
provided the impetus for a change in pricing structure between
the two parties. PF held similar discussions with other
distributors and revamped its pricing structure across the board.
Similarly, supplier-specific bullwhip information at various levels
of disaggregation also suggested that PF could benefit from
working with its suppliers to reduce the order bullwhip.
4.2 Discuss product-specific bullwhips with sales,
production and purchasing managers
Shipment bullwhips are of natural interest to sales representatives
for use in their discussions with customers and order bullwhips
are of natural interest to purchasing agents in their discussion
with suppliers. Other material flows (and bullwhip measures)
may only be of internal interest. In particular, the manufacturing
bullwhips are most likely to fall into this category. For example,
the right frame of Figure 4 shows a manufacturing bullwhip for
angel food cake, but when all products are taken into
consideration (the middle frame of Figure 1), manufacturing
smoothing prevails. Batch manufacturing may explain this
discrepancy in bullwhip measures. In some months, PF produces
no angel food cake but instead produces another type of cake.
Conversely, in the months where PF produces angel food cake,
there is no production of another type of cake. Thus, the
bullwhip created in manufacturing for angel food cake may not
be detrimental but simply a function of production choices. At
the same time, if PF could determine how best to reduce its batch
sizes in a cost effective manner, given the steady demand for
angel food cake, then PF could reduce its average inventory level.
Our analysis assumes the existence of only one manufacturing
step. In the presence of multiple manufacturing steps, product
flows and bullwhip measures can be tracked at each step. For
example, PF packaging is a separate step and inventories can
build up in front of the packaging process. Tracking of material
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flows through each step may help identify additional
improvement opportunities.
5. Select the appropriate time aggregation
interval and interval end-points
The data we collected from PF represent transactions aggregated
over a calendar month. We therefore calculate the CV for each
month observed. We explore herein how aggregating
observations over time distorts our understanding of the
bullwhip. Moreover, we show how the end-point of a time
interval may influence conventional and component bullwhip
measures.
The bullwhip aggregation interval is loosely synonymous with
an accounting period although the two need not coincide. For
example, if we aggregate data on a quarterly basis for purposes of
measuring the bullwhip, then the data could be aggregated over
a bullwhip-quarter defined by the months of February
MarchApril (with an end-of-bullwhip-quarter date of April 30).
This bullwhip-quarter aggregation can differ from the
accounting-quarter which aggregates the financial data over
the months of JanuaryFebruaryMarch to create a quarterly
income statement with an end-of-accounting-quarter date of
March 31.
Most academic research on the bullwhip effect uses
quarterly data because of readily available data from public
sources (Bray and Mendelson, 2012). In contrast, we suggest
firms use more granular data. Herein, we use monthly
bullwhip measures to match the monthly review cycle of PF.
Shipment bullwhips could be measured using weekly data if
shipments follow a weekly schedule. If a warehouse is
restocked daily, then perhaps daily aggregation is appropriate.
Fransoo and Wouters (2000) offer insight on how to manage
time (and product) aggregation issues.
An examination of monthly sales data at 45 Walmart stores
collected by Kaggle (2015) illustrates the CV in the quarterly
sales series differs depending on whether the quarter ends in
December, January or February. Specifically, when the quarter
ends in December, the CV is about 50 per cent higher (0.075)
than alternative quarter endings (e.g. 0.046 for January and
0.051 for February). As December is the highest sales month and
January the lowest, the CV calculated with a quarter end of
January or February aggregates the peak and valley into the same
quarter. This, in turn, artificially dampens the variation. We
suggest avoiding aggregations that artificially dampen the
bullwhip.
6. Discussion and summary
Our work suggests that a firm can benefit from breaking its
inter-firm bullwhip measure into three intra-firm (component)
bullwhips and, even further, into intra-specific bullwhips. These
measures are of course inter-related a firm will not ship absent
downstream customer orders; a firm cannot ship if it does not
have the goods available to ship; a firm cannot manufacture the
goods if it has not received the raw materials from its upstream
supplier; the upstream supplier will not ship the raw materials if
the firm has failed to place an order; and so forth. Thus, firms
cannot (and should not) view these bullwhips as entirely
independent. Nevertheless, by measuring these distinct
 Want to reduce the bullwhip?
Ming Jin, Nicole DeHoratius and Glen Schmidt
bullwhips, managers can get a better picture of where the firm
(and the supply chain) should focus improvement efforts.
Based on the analysis of data from our sample firm, PF, we
suggest applying the following principles to minimize the
bullwhip effect:
Rigorously track the three component bullwhips, namely,
shipment, manufacturing and order bullwhips: Few managers
break down their flow streams in the manner we suggest.
However, managers need to know exactly where
amplification (or smoothing) exists within their firm (and
by implication, in their supply chain). If it is not measured,
it is not managed.
Track intra-specific product flows and bullwhips relevant for
discussions with individual customers, internal managers and
suppliers: Intra-firm bullwhips can only be managed through
many focused discussions with customers, internal managers
and suppliers. In addition to tracking the intra-firm
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bullwhips, tracking a variety of intra-specific bullwhips
matters. The decision of which bullwhips to track is similar to
the decisions made when conducting SPC. When conducting
SPC, it is not feasible to track every single characteristic for
every single component. Instead, emphasis should be placed
on monitoring the key characteristics.
Understand the drivers of the shipment bullwhip: This bullwhip
seems the most straightforward to manage just immediately
fill orders by shipping from inventory (or, better yet, from the
end of the production line). Factors that inhibit this
shipping policy (such as holding inventory back in
anticipation of orders from preferred customers) should be
discouraged to the extent possible.
Understand the drivers of the manufacturing bullwhip: The
adoption of lean operating principles can result in production
smoothing among manufacturers. For firms such as PF that
find it optimal to use batch manufacturing, manufacturing
bullwhips may be present. Large setup costs entice the firm to
produce in relatively large, infrequent and sometimes
sporadic batches.
Understand the drivers of the order bullwhip: The order bullwhip
has probably received the most attention in the operations
management literature. Lee et al. (1997) list four possible
causes: demand forecast updating, order batching, price
fluctuations and rationing and shortage gaming. There are
also potential behavioral factors that can create an order
bullwhip (Croson and Donohue, 2006). Multiple other
pressures may impact order quantity (and therefore
frequency). For example, a firm may have docking or port
capacity constraints which limit raw material receipts.
Pick an appropriate time interval over which to track bullwhips
and select an appropriate ending point for this interval: As
discussed herein, the duration of the time interval over which
the bullwhip is measured should be tailored according to the
decision-making purpose. For example, if the manufacturing
bullwhip is of concern, then using quarterly data would have
the undesirable effect of masking a possible hockey stick
phenomenon (Singer et al., 2009). With regard to the ending
point of the time interval, aggregating the highest and lowest
flow points within the same time interval masks the
detrimental effects of variability.
PFs tracking of their product flows (and bullwhip measures)
resulted in the identification of significant cost savings within
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their own firm as well as that of their distributors. To calculate
these cost savings, we compared the actual inventories with
those required for an order-up-to model with no bullwhip.
Overall, we estimated the PF supply chain had the potential
to reduce delivered product cost by about 15 per cent if it
could eliminate the bullwhip and thereby reduce
inventory-holding costs for the product discussed herein.
Estimates for other products in our study exhibited more modest
but still substantial savings in delivered product cost of 2 to 3 per
cent. Moreover, the firm identified opportunities to modify its
pricing practices that induced substantial bullwhip into its supply
chain. We foresee the potential for similar successes at other
firms as they pay closer attention to the issues identified herein.
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About the authors
Ming Jins research interests lie primarily in empirical
research in operations management. In his research, he draws
upon methods from areas such as econometrics, optimization
and statistics. His current research has focused on bullwhip
effect and trade promotion, exploring potential bias in
aggregated bullwhip measurement, various driving factors of
the bullwhip effect and effectiveness of trade promotions for
healthcare products in a multi-echelon supply chain. He
received his PhD from the University of Utah in 2016.
Nicole DeHoratius received her DBA from Harvard Business
School, her MSc from the University of Sussex as a Rotary
Ambassadorial Scholar and her AB, magna cum laude, from
Harvard College. She joined Chicago Booth in 2001 and, since
then, has taught operations management, service operations and
supply chain management to executives in programs and
companies around the globe. For exemplifying the characteristics
students most value in their professors, DeHoratius earned the
2015 and 2016 Rotman School of Management Teaching
Award. The Manufacturing & Service Operations Management
(M&SOM) Society awarded her its Best Paper Award for the
article Retail Inventory Management When Records are
Inaccurate and she is the recent recipient of the Ralph Gomory
Best Industry Studies Paper Award for The Impact of Supplier
Inventory Service Level on Retailer Demand.
Glen Schmidt is the David Eccles Professor of Business at
the University of Utah. Following 15 years of industry
experience, he received his PhD from Stanford University in
Operations, Information and Technology. His research and
teaching have been recognized by Professional Societies and
Schools in various ways, for example, in best paper
competitions at Manufacturing and Service Operations
Management, at Production and Operations Management, at the
Journal of Product Innovation Management, at the Decision
Sciences Journal of Innovative Education, at the INFORMS
student paper competition and at INFORM-ED. Glen
Schmidt is the corresponding author and can be contacted at:
glen.schmidt@utah.edu