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Unit-VCoordination in the supply chain

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Supply chain coordination

and the bullwhip effect• Supply chain coordination:

 – All stages in the supply chain take actions together (results in

greater total supply chain profits

 –

!ach stage take into account the effects of its actions on the otherstages

• "ack of coordination results when:

 –

#b$ecti%es of different stages conflict

 – &nfor'ation 'o%ing between stages is distorted

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)ullwhip effect

•

*luctuations in orders increase asthey 'o%e up the supply chain

fro' retailers to wholesalers to

'anufacturers to suppliers

• +istorts de'and infor'ation

within the supply chain, where

different stages ha%e %ery different

esti'ates of what de'and looks

like

• esults in a loss of supply chain

coordination

.

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!ffect of bullwhip effect

• /anufacturing cost (increases

• &n%entory cost (increases

• 0ransportation cost (increases

• "abor cost for shipping and recei%ing (increases

• "e%el of product a%ailability (decreases

•

elationships across the supply chain (worsens

• rofitability (decreases

• eplenish'ent lead ti'e (increases

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Causes of bullwhip effect•&ncenti%e obstacles:

 – 3hen incenti%es offered to different stages or participants in a supply chain lead to

actions that increase %ariability and reduce total supply chain profits

•&nfor'ation processing obstacles:

 – 3hen de'and infor'ation is distorted as it 'o%es between different stages of the

supply chain, leading to increased %ariability in orders within the supply chain

•#perational obstacles:

 – Actions taken in the course of placing and filling orders that lead to an increase in

%ariability (long lead ti'es, batch ordering, rationing and shortage ga'ing

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Continued566•

ricing obstacles:

 – 3hen pricing policies for a product lead to an increase in

%ariability of orders placed (price fluctuations and 7uantity

related discounts

•)eha%ioral obstacles:

 –

!ach stage of the supply chain %iews its actions locally and is

unable to see the i'pact of its actions on other stages (proble's

in learning, 'utual trust etc6

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Strategies to achie%e coordination

• Aligning goals and incenti%es

• &'pro%ing infor'ation accuracy (sharing infor'ation correctly,

#S data

• &'pro%ing operational perfor'ance (reduced

lead9replenish'ent ti'es etc6

• +esigning pricing strategies to stabilie orders (such as !+"

• )uilding strategic partnerships and trust (C*, !C, V/&

;