What is the bullwhip effect and how does it relate to lack of coordination in the supply chain? ...

Answer: Many firms have observed the bullwhip effect in which fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect distorts demand information within the supply chain, with different stages having a very different estimate of what demand looks like. The result is a loss of supply chain coordination. This leads to increased inventories, poorer product availability, and a drop in profits. The bullwhip effect negatively impacts performance at every stage and thus hurts the relationships between different stages of the supply chain. There is the tendency to assign blame to other stages of the supply chain because each stage feels it is doing the best it can. The bullwhip effect thus leads to a loss of trust between different stages of the supply chain and makes any potential coordination efforts more difficult. It follows that the bullwhip effect and the resulting lack of coordination have a significant negative impact on the supply chain's performance. The bullwhip effect moves a supply chain away from the efficient frontier by increasing cost and decreasing responsiveness. The bullwhip effect reduces the profitability of a supply chain by making it more expensive to provide a given level of product availability.

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