STANFORD GRADUATE SCHOOL OF BUSINESS—Nearly 10 years ago, Hau Lee and Seungjin Whang, co-directors of the Stanford Global Supply Chain Management Forum, started blaming the bullwhip effect for a host of expensive problems in the manufacturing supply chain. As information about demand for a product moves upstream in the manufacturing process, they argued, it becomes distorted, like the wave movement down the length of a whip after it is cracked.
Sales estimates and forecasting are usually done separately by retailers, manufacturers, and suppliers. When retailers notice a slight increase in demand for a specific product, they may order a little extra from the wholesaler just in case they’ve sensed a trend. The wholesaler gets the order, sees the up tick, and makes its own forecasts—which are blurrier than the retailers’ because they aren’t based on any real sales figures. Then, when a manufacturer tries to interpret orders coming from the wholesaler, the perceived increase in demand can become further exaggerated: the bullwhip effect.
This spring, “Information Distortion in a Supply Chain: The Bullwhip Effect” was named one of the 10 most influential papers published in Management Science, the journal of the Institute for Operations Research and the Management Sciences, during the past 50 years. The journal is published by the Institute for Operations Research and Management Sciences.
Authored by Lee, the Business School’s Thoma Professor of Operations, Information, and Technology; Whang, the Jagdeep and Roshini Singh Professor of Operations, Information, and Technology; and V. “Paddy” Padmanabhan, now a professor at INSEAD, Singapore, the paper was published in Management Science in 1997 and is the most recent of the top 10 cited. The others all appeared more than 20 years ago.
Work by two other Business School faculty members was cited among the top 50 papers from the journal. The editors named “Investing in Reduced Setups in the EOQ Model,” published in 1985 and authored by Evan Porteus, the Sanwa Bank, Limited, Professor of Management Science; and “A Simplified Model for Portfolio Analysis,” by William F. Sharpe, the STANCO 25 Professor of Finance, Emeritus, published in 1963. Sharpe received the 1990 Nobel Memorial Prize in economics for his work in portfolio theory.
The Bullwhip Can Really Beat Up a Supply Chain
Hau Lee, V. Padmanabhan, Seungjin Whang, “Information Distortion in a Supply Chain: The Bullwhip Effect”, 1997. Management Science 43(4) 546
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