When replenishment orders are substantially larger than the increments in which demand actually occurs, order variability is magnified upstream . This phenomenon is an important operational cause of the bullwhip effect.
Suppose a retailer experiences relatively uniform weekly demand but submits one combined order every five weeks. The supplier observes four periods with no orders followed by one disproportionately large order. Although final-customer demand is stable, the order stream presented to the supplier is highly variable. If multiple retailers follow similar batching practices, the manufacturer's demand signal becomes even more volatile.
Large order batches are often caused by fixed ordering costs, transportation economies, minimum order quantities, quantity discounts, or scheduled ordering cycles. The resulting variability complicates capacity planning, production scheduling, transportation, labor deployment, and inventory management further upstream.
This does not improve visibility or generate more stable supplier demand. It does exactly the opposite by obscuring the underlying consumption pattern. Established supply-chain operations material confirms that ordering in lots substantially larger than the lots in which demand arises magnifies order variability upstream.
Reference Topic: Inventory, Forecasting and Demand Planning — Order Batching, Operational Obstacles, and Bullwhip Amplification.
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