Question

Bullwhip Effect:

Consider a supply chain where a manufacturer sells to a distributor who sells to a wholesaler who sells to a retailer. Last year, the retailer's weekly variance of demand was 4000 units. The weekly variance of orders was 5000; 8000; 12,000; and 17,000 units for the retailer, wholesaler, distributor, and manufacturer, respectively. (Note that the variance of orders equals the variance of demand for that firm's supplier.)

(a)               Calculate the bullwhip measure for the retailer.

(b)               Calculate the bullwhip measure for the wholesaler.

(c)               Calculate the bullwhip measure for the distributor.

(d)               Calculate the bullwhip measure for the manufacturer.

Answer 1

(a) Bullwhip measure for the retailer = Variance of orders / Variance of demand

= 5000/4000

= 1.25

(b) Bullwhip measure for the wholesaler = Variance of orders / Variance of demand

= 8000/5000

= 1.6

(c) Bullwhip measure for the distributor = Variance of orders / Variance of demand

= 12000/5000

= 2.4

(c) Bullwhip measure for the manufacturer = Variance of orders / Variance of demand

= 17000/12000

= 1.417