Causes of the bullwhip effect : A study of the bullwhip effect in the Volvo Group Service Market Logistics’ supply chain

Abstract: The bullwhip effect is defined as an upstream amplification of demand variability and has received interest within multinational companies for decades. As early as in the 1950’s, Forrester (1958) discussed what is today known as the bullwhip effect, which has a negative impact on the customer service, costs, and inventory investment in a supply chain (Lee et al., 1997). Even though the bullwhip effect has been noticed in various industries, the consequences, in form of decreased availability and increased costs the further up the supply chain the bullwhip goes, still remain. The employees at Volvo Group Service Market Logistics suspect that their supply chain has been affected by the bullwhip effect and want to know if it is correct and subsequently know why it has occurred. Therefore, this master’s thesis highlights the root causes of the bullwhip effect and presents strategies to mitigate it. To understand how the bullwhip effect affected the Volvo Group Service Market Logistics’ supply chain, the purpose was formulated as follow: The purpose of this study is to identify events in the Volvo Group Service Market Logistics’ supply chain where the bullwhip effect has occurred, its root causes, and how to reduce or eliminate the bullwhip effects.  The studied flow was from the Central Distribution Center (CDC) in Ghent, to the Regional Distribution Center (RDC) in Brazil, to the Dealers associated to the RDC in Brazil, and the customers. Data was collected from each node and events were studied to find bullwhip events. After sorting out the part numbers that passed the criteria for bullwhip events, the amount of data had to be reduced even more. A couple of different conditions were applied which resulted in four suitable bullwhip events. Thereafter, the authors conducted interviews with Logistics Managers at each node of the supply chain to find the root causes of the bullwhip effect in each studied event.  Among the several found root causes, lack of information transparency was the most frequent occurring root cause, found in three out of four studied bullwhip events. Insufficient communication and lack of information sharing cause bullwhip effects, and the authors found that improved communication both between and within the nodes will contribute to better planning, and consequently avoided bullwhip effects. Other root causes found were issues with the ordering system, lack of learning and experience, neglected lead times, fear of empty stock, price fluctuations, and phase-out of the spare part.  To reduce or eliminate the bullwhip effect, the focus was on mitigating the root causes since the root causes create opportunities for the bullwhip effect to occur. Four suggestions were given with suitable mitigation strategies found in the literature, where the four suggestions were sales campaigns, prepare for boosts, keep track of manually placed orders, and ordering system and Logistics Manager behavioural issues. The suggestions could then be connected to the different found root causes. The stated suggestions and mitigation strategies focused on mitigating the root causes in a long-term perspective and consequently the bullwhip effect itself.