TheBullwhipEffect(orWhiplashEffect)isanobservedphenomenoninforecast-drivendistributionchannels.TheconcepthasitsrootsinJForrester'sIndustrialDynamics(1961)andthusitisalsoknownastheForresterEffect.SincetheoscillatingdemandmagnificationupstreamasupplychainremindssomeoneofacrackingwhipitbecamefamousastheBullwhipEffect.

　　Becausecustomerdemandisrarelyperfectlystable,businessesmustforecastdemandtoproperlypositioninventoryandotherresources.Forecastsarebasedonstatistics,andtheyarerarelyperfectlyaccurate.Becauseforecasterrorsareagiven,companiesoftencarryaninventorybuffercalled"safetystock".Movingupthesupplychainfromend-consumertorawmaterialssupplier,eachsupplychainparticipanthasgreaterobservedvariationindemandandthusgreaterneedforsafetystock.Inperiodsofrisingdemand,down-streamparticipantsincreaseorders.Inperiodsoffallingdemand,ordersfallorstoptoreduceinventory.Theeffectisthatvariationsareamplifiedasonemovesupstreaminthesupplychain(furtherfromthecustomer).ThissequenceofeventsiswellsimulatedbytheBeerDistributionGamewhichwasdevelopedbytheMITSloanSchoolofManagementinthe1960s.

　　Thecausescanfurtherbedividedintobehavioralandoperationalcauses:

　　Behaviouralcauses

　　misuseofbase-stockpolicies

　　misperceptionsoffeedbackandtimedelays

　　panicorderingreactionsafterunmetdemand

　　perceivedriskofotherplayers'boundedrationality

　　Operationalcauses

　　dependentdemandprocessing

　　ForecastErrors

　　adjustmentofinventorycontrolparameterswitheachdemandobservation

　　LeadtimeVariability(forecasterrorduringreplenishmentleadtime)

　　lot-sizing/ordersynchronization

　　consolidationofdemands

　　transactionmotive

　　quantitydiscount

　　tradepromotionandforwardbuying

　　anticipationofshortages

　　allocationruleofsuppliers

　　shortagegaming

　　LeanandJITstylemanagementofinventoriesandachaseproductionstrategy