BULLWHIP EFFECT

TERRY CHIN

What is bullwhip effect?Occurs when companies significantly cut or add inventories. Small increase in demand can easily cause a big snap

CausesCustomer demand is hard to predict, relatively unstableDemand forecast is always inaccurate, based on statistics!

CausesPoorly maintained and unmanaged Supply Chain

Lack of communicationLack of coordination

CausesOrders batching

Shortage gaming

As a result!When demand rises, participants will increase their ordersWhen demand falls, orders fall or stop

CountermeasuresProviding access to point of sale (POS) data.

Vendor Managed Inventory (VMI)

CountermeasuresSmaller but more frequent ordersMake use of Electronic Data Interchange (EDI) and Computer Aided Ordering (CAO)

Countermeasures

Reduce minimum batch sizesAllocate units based on past sales instead of current sales

THANK YOU

Bibliography http://www.quickmba.com/ops/bullwhip-effect/http://sloanreview.mit.edu/improvisations/2010/01/27/understanding-the-bullwhip-effect-in-supply-chains/http://www.youtube.com/watch?v=Te3YC1GeLaEhttp://www.counterfeitchic.com/entryimages/wall_bull1.jpghttp://www.murphywhips.com/Whip_Collectors_-_Scobie_Stock_Whip.jpghttp://www.shjconsulting.co.uk/gifs/demandPlanning.jpghttp://2.bp.blogspot.com/_6BTY_R3aBUo/TI-p72fBEfI/AAAAAAAAACw/VbsRnuMXvBI/s1600/inventory.jpghttp://bionicbong.com/wp-content/uploads/2011/03/broken-supply-chain.jpghttp://cstpr.colorado.edu/prometheus/archives/UKMET%20Short%20Term%20Forecast.pnghttp://connect.mytmc.com/resource/resmgr/exec_blogs/bullwhipeffect1.gifhttp://connect.mytmc.com/resource/resmgr/exec_blogs/bullwhipeffect1.jpg.gifhttp://packaginghypermarket.co.uk/wp-content/uploads/image/vendor-managed-inventory.jpghttp://promotedprofits.com/wp-content/uploads/2010/11/affiliate-marketing-sales.jpghttp://photos.travelblog.org/Photos/40711/247612/f/2049462-The-famous-wall-street-bull-0.jpghttp://www.bigtopmania.co.uk/images/peteza_cowboy_bull-whips.jpg

Hi everyone, I am going to talk about the bullwhip effect today!*Economists call it a bullwhip because even small increases in demand can cause a big snap in the need for parts and materials further down the supply chain*Some causes of bullwhip effect are, Its really hard to predict the customer demand, its kinda unstable depending on the situationAnd, demand forecast are often inaccurate because they are based on statistics. This often results in over forecasting, known as safety stock*Another cause of it is the supply chain management!Usually badly maintained and in some occasion, not managed at allPoor communication up and down the supply chain andLack of communication throughout *Order batching occurs in an effort to reduce ordering costs, to take advantage of transportation economics (such as full truck load economies, and to benefit from sales incentives.)

Shortage gaming is when customers order more than they need during a period of short supply (hoping that the partial shipments they receive will be sufficient.)*As a result, in periods of rising demand, down-stream participants will increase their orders.in periods of falling demand, orders will fall or stop in order to reduce inventory*So basically, this is what happens. And the effect is that variations are amplified as one moves upstream in the supply chainThis leads to low utilization of the distribution channel*Some countermeasures are available. Such as providing access to point of sale (POS) data and the use of Single control of Vendor Managed Inventory (VMI)They can overcome exaggerated demand forecasts and long lead times should be reduced.*With the use of technologies such as Electronic Data Interchange (EDI) and computer aided ordering (CAO)More frequent ordering results in smaller orders and smaller variance.

*Another countermeasure is to allocate units based on past sales, as compared to current sales.And when you are ordering inventory, you can choose to reduce minimum batch size!

*Thank You.

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