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Bullwip Effect In Survice Industry

Evidence of Bullwhip Effect in Healthcare Sector: Causes, Consequences and Cures

Melbourne Business School 200 Leicester Street Carlton, Vic 3053, Australia.

Kannan Sethuraman

Indian Institute of Management, Ahmedabad, India.

Devanath Tirupati

Accepted for publication in International Journal of Services Operations Management.

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Evidence of Bullwhip Effect in Healthcare Sector: Causes, Consequences and Cures

1. Introduction
In recent years, the emergence of supply chain management as a key competitive capability has initiated a surge in interest from the academics and practitioners in studying the impact of demand variability on the performance of various members of a supply chain comprising manufacturers, distributors, wholesalers and retailers and in developing strategies for coping with the variability and improving performance. In their widely cited papers, Lee, Padmanabhan and Whang (1997a, b) define bullwhip effect, named after the way the amplitude of a whip increases down its length - as “the phenomenon where orders to the supplier tend to have larger variance than sales to the buyer (i.e., demand distortion), and the distortion propagates upstream in an amplified form (i.e., variance amplification).” The bullwhip phenomenon has been observed by many firms in a number of diverse industries. For instance, Procter & Gamble experienced wild fluctuation in orders issued by their distributors although its market research revealed that the demand for its diapers remained relatively constant. Hammond (1994) discusses the impact of poor coordination in the Italian pasta industry. Although the industry faced steady demand from the consumer, the pasta manufacturers were experiencing a more variable demand due to a number of practices such as trade promotions, volume discount, long lead times, full-truckload discounts and end-of-quarter sales incentives. Lee et al. 1997b provide several examples illustrating the existence of the bullwhip...