Demand variability increases as one moves up the supply chain away from the retail customer. Small changes in consumer demand can result in large variations in orders placed upstream. This phenomenon is known as the Bullwhip Effect and has been observed across most industries resulting in excess inventory; poor customer service, uncertain production planning and high costs. The problem of Bullwhip Effect even exists in relatively stable demand environment industries like pharmaceuticals. This paper is an attempt to understand business driven variability in demand.

I n the post liberalization era, India witnessed a rapid growth in almost all sectors of the economy. The over estimation of the potential of the Indian middle class by the best of the companies has been well documented. There is an observation that all organizations get carried during bull phases without thinking of bear phases. Recently, with the slow down in the economy, certain large manufacturing companies experienced a major problem. Logistics executives of P&G examined the order patterns for one of its best selling products, Pampers. Its sales at retail stores were fluctuating, but variabilities were not excessive. However, they examined the distributors orders and were surprised by the degree of variability. When they examined P&G's orders of materials to their suppliers, such as 3M, they discovered swings that were even greater. At first glance the variabilities did not make sense, while consumers at this stage consumed diapers at a steady rate. The demand order variabilities in the supply chain were amplified as they moved up the supply chain. P&G called this effect the Bullwhip Effect. A similar case was observed at Hewlett Packard (HP). When HP executives examined the sales of one of its printers at a major reseller, they found that there were, as expected, some fluctuations overtime.