The danger of the bullwhip effect is that it amplifies inefficiencies in a supply chain as each step up the supply chain estimates demand more and more incorrectly. This can lead to excessive investment in inventory, lost revenue, declines in customer service, delayed schedules, and even layoffs or bankruptcies. 2 Key Takeaways
Full Answer
Which of the following can happen because of the bullwhip effect? Oversupply of goods leading to increased inventory costs. --Trade estimates suggest that the bullwhip effect results in excess costs on the order of 12 to 25 percent for each firm in a supply chain.
The bullwhip effect is caused by demand forecast updating, order batching, price fluctuation, and rationing and gaming. Demand forecast updating is done individually by all members of a supply chain. Each member updates its own demand forecast based on orders received from its “downstream” customer.
The bullwhip effect results when company buyers fluctuate between overbuying and underbuying in an effort to moderate volatility in consumer demand. This effect often leads to excessive and costly inventory supplies or the reverse -- an exhaustion of inventory, or stockout, which angers customers.
It refers to increasing swings in inventory in response to shifts in customer demand as you move further up the supply chain.
Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules.
The causes of the bullwhip effect are demand forecast updating, order batching, price fluctuations, and rationing and shortage gaming.
Answer: ANSWER IS POTION (D).
A reduction of lot sizes increases the amount of fluctuation that can accumulate between any pair of stages of a supply chain, thus increasing the bullwhip effect.
Which of the following best describes the bullwhip effect? The bullwhip effect is a small fluctuation in demand that has a ripple effect up a supply chain. The ripple can lead to tremendous fluctuation in demand for parts or raw materials further up the supply chain.
How can it be overcome? Bullwhip effect is the increase of inventories on a supply chain starting at the end of a supply chain with the final customer and working backwards towards the initial supplier (supplier of raw materials).
What is meant by the term bullwhip effect in inventory management? Inventory oscillations become progressively larger looking backward through the supply chain.
It is a wasteful phenomenon that results in the potential loss of financial and physical resources. Managers who understand the bullwhip effect will be better able to forecast demands and make well-educated decisions for maintaining a consistent and efficient supply chain.