Analysis of the Bullwhip Effect in Supply Chains Using the Transfer Function Method

An important phenomenon in supply chain management, known as the bullwhip effect, suggests that demand variability increases as one moves up a supply chain. This paper examines the influence of different replenishment policies on the occurrence of the bullwhip effect. The paper demonstrates that certain replenishment policies can in themselves be inducers of the bullwhip effect, while others inherently lower demand variability. The main causes of increase in variability are projections of future demand expectations, which result in over-exaggerated responses to changes in demand. We suggest that, through appropriate selection and use of certain replenishment rules the bullwhip effect can be avoided, subsequently allowing supply chain management costs to be lowered.