bullwhip effect

Bullwhip effect is a problem in supply chain. It is the problem that recurring happens. Before I explain about bullwhip effect, I will explain about supply chain first.
A supply chain its self is an organizations or business network that connect firm its self, suppliers, manufacture, distribution centers, retail outlets, until to consumer to supply goods and services through final consumption. It is like chain that link supplier – manufacture – firm - distribution center – retailer – customer – consumption.
The link consist process to get raw materials, change these materials into goods in process, and then finished product, and finally distribute to customers.
It is simple if we talk in a small firm. But it can be more complex in big firm. In small company, it can coordinate each other with simple way, and sometimes easily. We just telephone if we want to order or supply something. But in big company, supplier, manufacture, distribution center, retailer, consumer are not just one, but may be a firm have hundreds or even supplier, distribution center, and retailer. Of course, it can’t coordinate easily, and many problems will happen.
The problems are sometime demand is higher than amount of finished product, lack of raw material, late shipment from suppliers, defective parts of raw materials, or trouble in production process. It cause of firm can’t predicted what will be happen in the future because they don’t have information about how many units of product customer wanted, when they want them, when the product can be produced, or how to implement highly efficient with just in time strategy.
One of the problems is called with bullwhip effect. This effect happen because there is distorted information between one entity to the other entity in supply chain about product demand.
The solution of bullwhip effect is all entity in supply chain reduce uncertain information about demands and supply, they must have accurate and up to date information and share it each other. To support this action all entity need supply chain management system to help them make better purchasing and scheduling decisions.
We can see example of Bullwhip effect .In one side, manager of one retailer see increasing in demand from customer amount 100 units. So this increasing demand looked by distributor amount 500 units. And finally firm will see this increasing demand amount 2500 unit. If we have pay attention for this situation, information of 100 unit can looked in firm like a snow ball from top to down. Progressively downwards.a snow ball will be greater. It can be problem for company, the increasing demand that catched of company is too big than tha actual increasing demand. It will make so many inventories in warehouse.