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Hau Lee / Warren HausmanPage No. 1

Hau L. LeeStanford University 

(used with permission) 

Information Distortion

 And the Bullwhip Effect

Rev. 3/11

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Hau Lee / Warren HausmanPage No. 2

Increasing Variability of Orders Upthe Supply Chain

Consumer Sales

0 5 

10 

15 

20 

Time 

OrderQuantity 

Retailer Orders to Wholesalers

0 

5 

10 

15 20 

Time 

OrderQuantity 

Wholesaler Orders to Manufacturer

0 5 

10 

15 

20 

Time 

OrderQuantity 

Manufacturer Orders to Supplier

0 

5 

10 

15 

20 

Time 

OrderQuantity 

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Hau Lee / Warren HausmanPage No. 3

Information Distortion:

The Bullwhip Effect

• Order variability is

amplified up the

supply chain:

upstream is worse.

• What you see is not

what they face.• Bullwhip, whip-saw,

whip-lash effect; or

acceleration principle.

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Hau Lee / Warren HausmanPage No. 4

Bullwhip in Electronics Industry 

week 

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

40,000 

45,000 

1  4  7  10  13  16  19  22  25  28  31  34  37  40  43  46  49  52 

Peripheral Product Consumables

week 

0 

50,000 

100,000 

150,000 

200,000 

250,000 

300,000 

350,000 

1  4  7  10  13  16  19  22  25  28  31  34  37  40  43  46  49  52 

Unit orders from a major retailer to manufacturer

Total unit sales at outlets of retailer  

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Hau Lee / Warren HausmanPage No. 5

Bullwhip in Consumer Goods

Babies P & GWholesalersRetailersCustomers 3 M

Order Variability Up the Pampers Supply Chain 

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Hau Lee / Warren HausmanPage No. 6

Consequences of Demand Distortion

Active Learning: 2 minutes, nearest neighborList four cost or performance consequences of

Demand Distortion 

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Page No. 7

Causes of the Bullwhip

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Hau Lee / Warren HausmanPage No. 8

Counter-Strategies

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The Role of the Internet

in Demand Management

• Facilitates timely and accurate transfer ofinformation.

• Visibility of end demand information across the

supply chain.

• Reduces order costs to induce more frequentorders.

• Enables cross-enterprise performance measures.

• Coordinates shipments for more responsivedeliveries.

• Transparency of actions by supply chain partners.

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Hau Lee / Warren HausmanPage No. 10

CPFR (Collaborative Planning,

Forecasting and Replenishment) 

Inter-

face

BUYER SELLER

Forecast

Table

Shared

Data

Inter-

face

Promotions

Table

Item

Table

   A   P   P   L   I   C   A   T   I   O   N

 

Forecast

Table

Promotions

Table

Item

Table AP P L I   C AT I   ON

ITEM

NUMBER

1234567890001

1234567890002

1234567890003

… 

RTLR’S 

FORECAST

1200

14000

330

MFR..

FORECAST

1150

9000

350

DELTA

50

5000

20

TOLERANCE

100

2000

50

Internet

OK?

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Hau Lee / Warren HausmanPage No. 11

CPFR Example 

ITEM RETAILER'S MFR'S

NUMBER FORECAST FORECAST DELTA TOLERANCE OK?

123 1200 1150 50 100 YES

124 14000 9000 5000 2000 NO

125 330 350 20 50 YES

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Hau Lee / Warren HausmanPage No. 12

RosettaNet

• An independent, self-funded,

non-profit consortium to

develop and deploy standard

electronic commerce interfaces

to align the processes betweensupply chain partners.

• Launched in June 1998.

• More than 500 organizations

are members.

I T Board:

 Manufacturers: 3Com, Cisco, HP,

IBM, Intel, NEC,

Quantum, Siemens, Solectron,

Toshiba Retailer/distributors: CompUSA,

Computacenter, EDS, Inacom,

Insight, MicroAge, Office Depot,

Arrow, Avnet, CHS, Ingram

Micro, Tech DataOthers: Lucent, AMEX, GSA,

Microsoft, Netscape, Deutsche

Financial, FedEx, UPS, GEIS,

 pcOrder, SAP 

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RosettaNet Standards

•

Utilization of HTML/XML• Common definition of standard dictionaries.

• A 14-digit Global Trade Item Number (GTIN) provides standardized product identification

numbers. Related IDs for document type, long-livedassets, locations, shipping container codes.

• Adoption of standard e-Business process dialogs --Partner Interface Processes (PIPs), for product

management, order and inventory management, andservice/support.

• Website: Rosettanet.org

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Hau Lee / Warren HausmanPage No. 14

Summary 

Bullwhip effects are harmful to the efficiency of a

supply chain.

Understand the causes to devise counter-strategies.

Implementing counter-strategies requires:

information integration

collaborative efforts

overcoming organizational barriers