What best describes the bullwhip effect in supply chains?

• A. A phenomenon where demand becomes erratic leading to stockouts and backorders only at the retailer.
• B. When small demand variations amplify as they move up the supply chain, causing forecast errors and excess inventory.
• C. A strategy to synchronize supply chain through shared demand data.
• D. The reduction of variability in demand through safety stock.

Answer: (B)

The bullwhip effect is when small changes in end-customer demand become larger as they move up the supply chain, leading to greater forecast errors and excess inventory. This amplification happens because each stage reacts to perceived changes with its own forecasts and orders, and delays or batching can make these signals look bigger to the previous stage. The description that matches this idea captures both the upward amplification and the resulting inventory and forecast consequences.

The other ideas describe related concepts but not the phenomenon itself. One focuses only on erratic demand at the retailer, which doesn’t capture the up-the-chain amplification. Another talks about synchronizing demand data across the chain, which would mitigate the bullwhip effect rather than describe it. The last mentions reducing variability with safety stock, which is a mitigation approach, not the underlying amplification of demand signals.