What are the four main causes of the bullwhip effect in multiechelon supply chains? Which causes are likely to have the largest effect in each of the following systems? (a) A consumer products distribution network, consisting of the manufacturing plant, regional warehouses, and retail outlets. (b) A spare parts network, consisting of a main distribution center, regional facilities, and customer sites. (c) A military supply network, consisting of a central warchouse, regional depots, and field usage sites.

Supply chains must predict future customer demand to ensure they have the right products in the right quantities when needed. This process is known as demand forecasting. Unfortunately, it's not uncommon for companies to rely on orders they've received to estimate future demand, which can inaccurately reflect the actual consumer needs.

For example, if a retailer orders more of a product in anticipation of a sales uptick, the manufacturer may interpret this as a lasting increase in consumer demand and subsequently ramp up production. However, if the retailer's demand forecast was off, now both the retailer and manufacturer sit with excess inventory. This misalignment is particularly challenging in a consumer products distribution network, like in the exercise's first scenario, where promotional activities and consumer trends can further distort demand signals. Accurate demand forecasting requires sophisticated models that consider various factors, including historical sales data, market trends, and seasonal fluctuations.

When it comes to managing inventory and shipping, companies often group orders together, known as order batching. This practice can lead to periods of high demand followed by quiet spells in the supply chain. The appeal of batching orders comes from potential savings on shipping costs or meeting suppliers' minimum order requirements.

Imagine a spare parts network where parts are not needed constantly but are critical when they are. In such a system, companies might wait to place large orders. While this might seem like an efficient move, it can cause severe variability upstream. Manufacturers may not see steady orders but rather sporadic, large batches that can strain production cycles and inventory management. As the exercise suggests, in the spare parts network, this effect is likely amplified because the parts are ordered less frequently and in larger quantities, magnifying the bullwhip effect.

Changes in price due to sales, promotions, or discounts can cause sudden shifts in buyer behavior. Customers may buy in bulk during a promotion and then not purchase again until the next sale, leading to a pattern of feast or famine in ordering.

In consumer product supply chains, as noted in the example of scenario (a), price fluctuations can play a significant role in the bullwhip effect. Retail outlets might heavily stock up during a discount period, leading manufacturers to believe there is a higher demand than what exists in a standard pricing environment. When the promotion is over, and sales normalize, suppliers are left with excess inventory and capacity inaccuracies. Price fluctuations can thus distort the demand signal, with consumer behavior exacerbating supply chain variability.

Companies often face scenarios where product availability becomes limited, which can incite a behavior known as rationing and shortage gaming. In such cases, companies might order more than they need, anticipating that the supplier will allocate the inventory proportionally among its customers.

If a supplier can't fulfill an entire order, they might supply a percentage of the order to each customer based on order sizes. For example, in a military supply network, as described in the third scenario, if a regional depot expects a short supply of critical items, they may exaggerate their needs, hoping to secure enough stock. However, if multiple depots practice this, the central warehouse receives inflated orders, leading to a skewed view of actual demand. Over time, this can result in either severe overstocking or understocking once the actual need is revealed.