The `bullwhip effect' is a phenomenon observed across industries in the supply chain. The `bullwhip effect' illustrates how distorted information from one end of the supply chain to the other can lead to tremendous inefficiencies such as excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation and mixed production schedules. Due to the `bullwhip effect' the demand order variability in the supply chain gets amplified as it moves up the supply chain. Even when the consumer demand does not seem to fluctuate very much at the retail level, there is a pronounced variability in the retailers' orders to the wholesalers, which spikes up even more as the order moves to the manufacturer. The article tries to find out the causes of this effect so that proper strategies can be devised in order to check this phenomenon.

Procter & Gamble (P&G) executives in early 1997 were amazed when they analyzed their order pattern for one of their best selling products, Pampers. The sales at their retail outlets were not fluctuating excessively but the degree of their distributors' orders showed a high variation. Surprisingly, when the executives looked at their own raw materials ordered, they found that the variabilities were even greater. At the first instance, such variability did not make sense. The babies consumed diapers at a steady rate but the demand for orders at the distributor level were pretty huge. P&G called this phenomenon "the bullwhip effect". The same phenomenon was observed at various other industries and it came to be known also as "the whiplash effect" or "the whipsaw effect". The "Bullwhip effect" illustrates how distorted information from one end of the supply chain to the other can lead to tremendous inefficiencies such as excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation and mixed production schedules.

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