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Bullwhip Effect
Supply Chain Management
Fluctuation in orders increase as they move up the supply chain
Demand information is distorted as it travels within the supply chain, so that different stages have different perspectives and estimates of the chain demand
The Bull Whip Effect is the uncertainty caused from distorted information flowing up and down the supply chain.
Supply Chain Management
Who is Affected ?
Nearly at all industries are affected.
Firms that experience large variation is demand are at risk.
Firms that depend on supplier upstream or distributor or retailer down stream may be at risk.
Supply Chain Management
Example• Company sales a FMCG item on open market, Retailer offer a
sales promotion to boost sales of that item.
• Retailer fail to notify of this sales to Manufacture. Company recognize that sales has increased.
• Company increases inventory to allow for increased manufacturing of particular item.
• Company notice to supplier for increase demand.
• Supplier increase inventory to meet demand.
Supply Chain Management
Bullwhip Effect
Supply Chain Management
Result of Bullwhip Effect Excess Inventory. Problem with quality. Increased raw material cost. Over time expenses. Increased shipping cost. Lost customer service excellence. Lost sales. Un necessary adjust capacity.
Supply Chain Management
Barrier to Coordination in a Supply Chain
Information Processing Barriers Operational Barriers Pricing Barriers Incentive Barriers
Supply Chain Management
Supply Chain Management
Information Processing Barriers
Independent forecasting at each stage based on received orders
Lack of information sharing among the various stages of the chain
Supply Chain Management
Potential Solutions
Sharing point of sale data
Collaborative forecasting and planning
Single stage control of replenishment◦Continuous replenishment programs (CRP)◦Vendor managed inventory (VMI)
Supply Chain Management
Operational Barriers
Ordering in large lots in order to reduce the fixed costs associated with order placement and transportation.
Rationing and shortage gaming: Ordering larger quantities than necessary, in order to eventually get what you need.
Potential Solutions
Reduce replenishment lead times, by taking advantage of modern IT capabilities◦Computer-assisted ordering◦EDI
Reduce lot sizes◦Computer-assisted ordering◦Shipping in LTL sizes by combining shipments
Ration based on past sales and information sharing to limit gaming
Supply Chain Management
Pricing Barriers
Lot size-based discounts
Price fluctuations (e.g., due to promotions) resulting in “forward buying”
Supply Chain Management
Potential Solutions
Move from lot size-based to volume-based quantity discounts (consider total purchases over a specified period)
Stabilize pricing◦ Limit quantity purchased during a promotion
Supply Chain Management
Best way for tackling Bullwhip effect is
Supply ChainVisibility
Supply Chain Management
End of Topic
Supply Chain Management