What is the Overall Bullwhip Effect?

Question

BlackTom AI · Accepted Answer

This question asks for the Overall Bullwhip Effect, a metric used to quantify how demand variability is amplified up the supply chain.

First, note that the provided data for this numerical question appears incomplete: there are no answer options to evaluate against, and only a single numeric value is listed in the answer field without context.

In general, the Bullwhip Effect is defined as the ratio of the variance (or sometimes the standard deviation) of orders placed by a stage in the supply chain to the variance (or standard deviation) of actual customer demand observed at the consumer level. A common formulation is:
- BE = Var(Order quantities) / Var(Customer demand)
Alternatively, some analyses use BE = (stdDev(Order quantities))^2 / (stdDev(Customer demand))^2, which yields the same result as using variances.

To compute BE from data, you would:
1) Collect a time series of customer demand (D_t) and a corresponding time series of orders issued by the firm (O_t) over the same time horizon.
2) Compute the variance (or squared standard deviation) for both series: Var(D) and Var(O).
3) Take the ratio BE = Var(O) / Var(D).
4) Interpret the result: BE > 1 indicates amplification of variability; BE = 1 suggests perfect alignment with no amplification; BE < 1 would indicate dampening.

Since there are no answer options to critique, we cannot assess which choice is correct or incorrect. If the expected overall bullwhip value is 17.67, that would imply a substantial amplification where the variance of orders is about 17.7 times the variance of customer demand, assuming the common variance-based definition.

Without the underlying data or the option set, the key steps remain the same: identify the time-series data for demand and orders, compute their variances, and form the ratio to obtain the Bullwhip Effect. Any calculation errors typically arise from mismatched time periods, non-stationary data, or using standard deviations instead of variances without proper squaring consistency.

MGT175_FA25_A00 Mid-Term Examination

What is the Overall Bullwhip Effect?

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