Suppose that in month 1, both the retailer and the wholesaler in a supply chain ordered 20,000 units. Then in month 2, the retailer decreases its order size by 500 units. If the wholesaler then decreases its order size in month 2 by 700 units, which of the following is TRUE?
A) The wholesaler is contributing to the bullwhip effect.
B) The wholesaler is providing a dampening (anti-bullwhip) effect.
C) The bullwhip measure for the wholesaler equals 0.70.
D) Neither amplification nor smoothing is present.
E) The wholesaler is providing both amplification and smoothing.

Question

Quizplus · Accepted Answer

BThe bullwhip effect refers to the phenomenon where variations in demand increase as they move up the supply chain from retailers to wholesalers and manufacturers. In this scenario, the wholesaler's larger decrease in order size compared to the retailer's decrease is contributing to the bullwhip effect by amplifying the variation in demand (Choice A). However, by reducing the order size more than the retailer, the wholesaler is also attempting to dampen future expected demand variations, which can be seen as providing a dampening (anti-bullwhip) effect (Choice B).

Suppose That in Month 1, Both the Retailer and the Wholesaler