Distinct causes of bullwhip effect:

Distinct causes of bullwhip effect are listed as follows.

 (a) Error in demand forecasting causes bullwhip effect. Because of forecasting error, supply chain partners go into speculation game associated to actual demand. As the number of supply chain partner enhance, the demand variability gets amplified as we move away from the cutomers' end in the supply chain. To counter this effect, a possible measure is to share consumption data with upstream members. This requires following:

• Point of sale data given to manufacturers and distributors
• Use EDI and internet to share data
• Vendor managed continuous or inventory replenishment programs
• Direct sale techniques to get downstream demand information,
• Share sales, capacity and inventory data to reduce gaming.

(b)  Order batching is another reason of Bullwhip effect. This is driven by the following factors:

• Economies of scale in order costs
• Economies of scale in transportation, that means. one truck load (TL) vs. less than a truck load (LTL)
• MRP systems, which is based on monthly or periodically updating approach,
• Push ordering (for example to meet a quarterly sales quota) drive order batching

To counter this effect, following measures are helpful.

• Drop off order costs
• Use Electronic Data Interchange (EDI) technology and standardize ordering processes
• Innovative transportation (like third party logistics providers, 3PL)