Bullwhip Effect - Pampers

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I. What is the Bullwhip Effect?                                                         p.2

II. Procter & Gamble                                                                         p.3 et 4

II. P&G solutions to reduce the Bullwhip Effect                                          p.5

The management of the supply chain is a major stake for companies in terms of competitiveness. Because, even if the companies are independent, every actor of the chain depends from each other. Many companies cope with variations of the demand within the supply chain. But when these variations are abnormally important, we deal with the Bullwhip effect.

1. What is the Bullwhip effect?

Concept developed by the theorist Jay Forrester in 1961, the bullwhip effect is when the demand of the market is almost constant and the quantity of orders to the suppliers within the supply chain is more important than the demand of the market. In other words, the Bullwhip effect is a variation that we can observe between the real consumer demand and the demand between the others actors who are part of the supply chain.  At the end of the chain, the level of production doesn’t match with the level of the market demand.

The question associated to the bullwhip effect is “when to order and which volume?”

The main consequence of this effect is the variations of the stocks. In periods of sub-activity, the company stocks what it produces and which said stock, said loss of money. During periods of over activity, the company sells what it produces and it is in out of stock that provokes delays in delivery. Consequently, it would not reply well to the consumer demand. If the retailer and the wholesaler do not anticipate the order of a growing demand from the consumers, the producer could not answer the demand and let the possibility to the consumer to buy products from their competitors.

All supply chains cope with problems of uncertainty. The stake is to find a strategy to reduce the effect of uncertainty to maximize the competitive advantage.

A lot of major reasons contribute to amplify the bullwhip effect:

·       Lack of information

·       Poor forecasting

·       Growing oscillation

·       Price fluctuations

·       Product promotions

·       Order batching

To have an idea of what impact can have the Bullwhip effect on a company, we decided to analyze the case of Procter & Gamble company and specially the example of one of its best-selling brands: Pampers diapers.

1. Procter & Gamble (P&G)

Let us begin by introducing Procter & Gamble, to understand the importance of a good management of the supply chain.

Procter & Gamble is an American firm, a world leader of mass consumption goods. The listed company provides branded consumer packaged goods to the consumers across the world and operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care and Baby, Feminine & Family Care. It sells its products in 180 countries through mass merchandisers, grocery stores, membership club stores, distributors, baby stores, specialty beauty stores. 

P&G has 145 brands, with subsidiaries as Pampers, Tide, Gillette, Olay and Cover-girl. 23 of these brands represent a billion-dollar turnover. The brands of P&G are a part of daily life of the consumers worldwide.

As many companies, P&G had to cope with problems in its supply chain management. In the 1990’s, P&G faced a problem of very important demand variations for its products Pampers diapers among its supply chain.

The managers of P&G noticed irregular variations in the rhythm of production of pampers diapers. Indeed, they observed a very damaged curve, with sometimes unexplained peaks of production. When they examined the distributors orders, they saw the variation of orders increased from the retailer level to the distributor level up the supply chain.

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