Bullwhip Effect in Supply Chains and Cost Rigidity

Hakjoon Song () and Daqun Zhang
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Hakjoon Song: College of Business Administration and Public Policy, California State University Dominguez Hills, Carson, CA 90747, USA
Daqun Zhang: College of Business, Texas A&M University Corpus Christi, Corpus Christi, TX 78412, USA

JRFM, 2025, vol. 18, issue 5, 1-20

Abstract: The bullwhip effect is the phenomenon of distorted information that causes the amplification of variability of demand in supply chains. We examine the relationship between the bullwhip effect and cost behavior using a large sample of U.S. public firms from 1980 to 2019. Our empirical results show that the costs of firms with a higher intensity of bullwhip effect are significantly more responsive to changes in sales, suggesting that firms facing higher amplification of demand will adopt a less rigid short-term cost structure with lower fixed and higher variable costs. Furthermore, the bullwhip effect is associated with a higher elasticity of number of employees, operating leases, and rental expenses with respect to sales. The findings of mediation analyses suggest that firms are likely to lease capacity resources to increase the flexibility and manage the operating risk associated with the bullwhip effect. The results are robust to alternative model specifications. This study contributes to both the cost accounting and supply chain management literature, and documents large sample evidence on whether and how the bullwhip effect affects a firm’s choice of cost structure.

Keywords: bullwhip effect; cost rigidity; cost management; supply chain (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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