Hence, the longer the lead time is, the more pronounced an order will be as an reaction to an increase in forecasted demand (especially in conjunction with updating the safety stock levels, see above), which again contributes to the bullwhip effect.Local optimisation, in terms of local forecasting and individual cost optimisation, and a lack of cooperation are at the heart of the bullwhip problem.What happens when a supply chain is plagued with a bullwhip effect that distorts its demand information as it is transmitted up the chain?In the past, without being able to see the sales of its products at the distribution channel stage, HP had to rely on the sales orders from the resellers to make product forecasts, plan capacity, control inventory, and schedule production.
In reality, in such a situation traditional forecasting methods and stock keeping strategies contribute to creating the bullwhip effect.
It leads to excessive safety stock, higher production costs and overheads, potential final product quality distortions, poor customer service, lost sales, higher logistics costs, and so on.
Some of researchers try to find origins of the bullwhip effect in the psychology of decision makers.
Sources of variability can be demand variability, quality problems, strikes, plant fires, etc.
Variability coupled with time delays in the transmission of information up the supply chain and time delays in manufacturing and shipping goods down the supply chain create the bullwhip effect.