Exploring the Bullwhip Effect by Means of Spreadsheet Simulation

One of the main supply chain deficiencies is the bullwhip effect: demand fluctuations increase as one moves up the supply chain from retailer to manufacturer. The Beer Distribution Game is widely known for illustrating these supply chain dynamics in class. In this paper we present a spreadsheet application, exploring the two key causes of the bullwhip effect: demand forecasting and the type of ordering policy. We restrict our attention to a single product two-echelon system and illustrate how tuning the parameters of the replenishment policy induces or reduces the bullwhip effect. We also demonstrate how bullwhip reduction (dampening the order variability) may have an adverse impact on inventory holdings and/or customer service. As such, the spreadsheets can be used as an educational tool to gain a clear insight into the use of inventory control policies and forecasting in relation to the bullwhip effect and customer service.