What is the Bullwhip Effect?
The bullwhip effect is a situation that highlights how minor changes in the operations of a warehouse escalate and influence the rest of the delivery lifecycle. It usually highlights the aftermath of errors like delays, misplacement, or anything similar in supply chain management and their consecutive impacts. These impacts are misalignment, increased product transit time, and the addition of unforeseen costs.
Significance of Bullwhip Effect in an E-commerce Shipping and Delivery
The bullwhip effect used for forecasting and educational purposes by a shipping company allows them to ensure optimal efficiency in big or small processes. It reduces the probability of an error happening in real time.
- Error reduction: The delivery lifecycle is closely knit, where several contractors collaborate. Often, a small error from the specific contractor escalates and affects the efficiency of other succeeding parties. Such a situation is nipped by using the bullwhip effect for forecasting purposes. A manager of a warehouse or a courier will be able to understand the consequences of their action, thus allowing them to ensure optimal service delivery. The margin for error is significantly decreased using this method.
Prerequisites of Bullwhip Effect and How It Works
There is no requirement to use a bullwhip effect in a business or supply chain ecosystem. This effect is accomplished in the following ways.
- Forecasting operational causes and potential risks: Operational elements such as batching, inspection, sorting, demand signal processing, and similar components are considered in this approach. It is followed by forecasting all possible errors, big and small.
- Risk prevention and management: As per the forecasted errors, certain conditions are established to prevent such risks.
Use Case with Bullwhip Effect
For example, a merchant selling cat food has a monthly order rate of 10,000 units. However, in one month, the merchant received 20,000 orders. Based on this insight, they ordered 20,000 units from the manufacturer from next month onwards. Witnessing such a change, the manufacturer started stocking more units to satisfy the demands. It further denotes changes in management and stocking of all the related entities.