Niloufar Pourshir
Student No.: 27727
Reflection Paper #3
Q1: One of the causes of the bullwhip effect Lee et al. (1997) identify is inventory
rationing. Without having read the paper, would you have considered this as an intuitive
cause for amplified variability in orders?
A1: The answer of this question is very easy after passing quarantine time and the experiences
that I have gained from those months. When I was at the grocery stores lots of shelves were
empty like instant yeast, toilet papers and sunflower oil. But why sunflower oil? Which does not
make sense for me that panic buyers just had finished all the sunflower oils. But after reading
Lee’s paper, I understood that people were not buying sunflower oil any less than they bought it
before. In normal times, there are many trucks which carry loads from suppliers to retailers and
they are programmed by computers (imagine that Migros market which is in Viaport has 10
trucks). But in the COVID-19 pandemic, herd mentality lead people to pile up more than enough
toilet papers. This movement made managers of the markets to sacrifice something in order to
meet their customers’ demands of toilet papers. in the other words, they had rationing their
sunflower oil and toilet paper inventory.
As a result, managers ordered excessive amount of toilet papers and the trucks were filled with
the huge pile of toilet papers and they had not enough space for carrying sunflower oil like before
so, they skipped sunflower oil.
Then panic buyers, started to search for buying more than enough sunflower oils because they
felt it is going to be scarce. After the lockdown, managers could fall into the trap and think the
demand of sunflower oil had been increased so they must order more which is another example
of bullwhip effect problem.
Q2: Can there be cases where the bullwhip effect can be beneficial for the entire supply
chain? For one player of the supply chain?
A2: For answering this question, it is better to review the Bullwhip effect definition. The
Bullwhip effect is an event which shows the fluctuations in products/orders through
Niloufar Pourshir
Student No.: 27727
Reflection Paper #3
different stages of the supply chain. In the other words, increasing/decreasing customers’
demands affect companies’ inventories. Companies usually tries to predict demands to
prepare products in an efficient and timely manner. But predictions usually are not precise
because of distorted information. Plus, decisions are usually made by managers who
overestimate demands. Most of the times, this phenomenon leads to making poor
decisions which negatively impact other managers in the supply chain and can cause
financial loss to the company.
The poor decisions can cause both excess (wasted resources) and lack (unfulfilled
demands) of inventory. Either of them is detrimental for the business. For instance, an
excess of a specific product in a market which can goes bad in a week e.g. dairy products,
can prove costly to the market if the customer demand does not grow as it predicted by
the managers. So, the products get wasted. On the other hand, if the products do not
spoil in a short time e.g. pampers, rice etc. the excess amounts of them can be used for
preparing the unforeseen fluctuations in demand or lead time which is called safety stock.
Now imagine we have an excessive amount of rice in Migros’s inventory which can be
used as a buffer by the manager to accommodate immediate changes in customers’
demands. Plus, when the supplier of Jasmine rice is unable to deliver the rice packets at
the expected lead time.
Overall, in my opinion, bullwhip effect cannot be beneficial for the entire supply chain, but
it is beneficial for one player (retailer) of the supply chain like Migros market.
Q3: The models Lee et al. (1997) present focus on the relationship between the retailer
and supplier. A supply chain can potentially be more complex, with the plant warehouse,
the manufacturer’s warehouse, the retail storage space etc. all adding layers to the supply
chain. Can the insights from Lee et al. (1997) be extended/be still valid for a more complex
supply chain?
A3: Yes, I think the insights would be still valid for a more complex supply chain, however
obviously the models should be modified to take into account the added compartments,
Niloufar Pourshir
Student No.: 27727
Reflection Paper #3
such as plant warehouse and etc., effects on the demand signal. Adding more
compartments to the supply chain, complicates the information propagation behavior but
that doesn’t alter the fact that information distortion causes the bullwhip effect and that in
return deteriorates the efficiency of the supply chain system.
However, in a more complex supply chain system, misinformation might be damped or in
other words the demand signal could be better filtered to get rid of the noise variance and
thus for instance price fluctuations or order batching and other culprits of the bullwhip
effect might not add the same amount of noise to the demand signal compared to a
simpler supply chain system. Or on the other hand, in a more complex supply chain
system, with more compartments, there could be more misinformation sources which
amplify the bullwhip effect.
Q4: Some researchers have pointed out trust between parties as a significant factor in
supply chain relations. Can higher trust be a factor that (1) alleviates the bullwhip effect,
(2) increases the supply chain efficiency?
A4: We know that bullwhip effect is basically caused by adding noise to the demand
signal from downstream to the upstream of the supply chain and is a culprit for some
supply chain inefficiencies, causing loss of demand or incurring excessive cost because
of over-prediction of the demand such as stock piling. Any mistrust between the supply
chain players can add an additional noise to the demand signal and that’s because what
mistrust does is basically adding further risks to the ordering quantity in supply chain
which then translates to higher variance in the demand signal. These additional risk
factors caused by the mistrust, makes the forecasting more complicated for the players
which then changes their behaviors in response in a way that’s not efficient.
For example, if a supplier can’t trust on its customer’s (e.g. a retailer) orders for future
forecasting, maybe because the retailer decides to do promotion without telling the
supplier beforehand, then the supplier in return have to consider this risk of a sudden
Niloufar Pourshir
Student No.: 27727
Reflection Paper #3
spike in the demand for its operations which can have consequences like stock piling and
etc. Or when the retailer doesn’t order the real demand quantity and instead orders more
than the real demand when its afraid of rationing, this is a misinformation that propagates
in the supply chain system out of mistrust which causes the bullwhip effect. However, if
trust put in place, supply chain players wouldn’t have any incentive to propagate
misinformation and thus the bullwhip effect would be alleviated which consequently
increases the efficiency of the supply chain.