Table of Contents
An introduction
The Bullwhip Effect: Causes
Countermeasures for the Bullwhip Effect
Understanding the Bullwhip Effect on Supply Chains
An opening
Unmanaged supply chains are not always stable. Variability in demand is a result of moving up the supply line away from the retail client. Little changes in consumer demand can cause large variations in orders that are placed upstream. As each organization attempts to solve the problem its way, eventually the network may oscillate in huge swings. This phenomenon is called the bullwhip effect. It has been observed in all industries.
The Bullwhip Effect has many causes. Variability may be caused by quality problems or strikes. Variability combined with delay in information transmission up supply chains, and delays manufacturing and shipping goods down supply chains can cause the bullwhip effects.
Overreactions to backlogs
In an effort to reduce inventory, neglecting to place orders
There is no communication between the supply chain and downstream
There is no coordination in the supply chain.
Information and material flow delays
Order batching: Larger orders can lead to more variation. Order batching helps to reduce order costs, take advantage full truck load economies, and receive sales incentives. Forward buying is a common way to reap the benefits of lower prices.
Customers may play shortage games by ordering more than they need in a time of low supply and hoping that they will receive enough.
Inaccuracies in Demand Forecasting: Each chain member adds a percentage to the demand forecasts. There is no visible indication of customer demand.
No cost return policy
There may be other reasons for increasing the bullwhip impact:
Processing demand-induced signalling
Non-zero main time;
Grouping orders
Supply shortages and supply defects
Prices can change.
These are the main reasons why taking under is used to predict demand. This is where the most common re-examination takes place. It involves the use of models and various technologies to forecast the cause of bullwhip effect and manage the supply chains.
The bullwhip effect can be inferred from analysing the factors that contribute to its rise. Literature lists many ways that it can be reduced.
There are three options:
Modification in the design of physical processes (e.g. The main time is reduced, and the supply chain channels are eliminated.
Modification of information channels design (e.g. delivering data about the demand to customers through supply chain
Modifications to the design of decision processes (e.g. Different rules are used to Completion of Provisions
Countermeasures against the Bullwhip Effect While the bullwhip phenomenon is quite common, it has been successfully managed by many of the world’s most respected companies. These are some examples of countermeasures to the bullwhip effect:
Countermeasures against order bulking – High order costs are countered through Electronic Data Interchange (EDI), as well as computer aided ordering. Third-party logistics can help with full truck load economics. Regular deliveries are countered by random or correlated orders. Orders placed more often result in a smaller order and lower variance. A higher order frequency does not mean a lower demand variance. Instead, it is seen by its upstream counterparts. An entity’s Safety stock requirement may rise or fall if it orders more frequently. For details, see the Inventory Management section.
Countermeasures against shortage gaming – The proportional rationing scheme is countered with allocating units based upon past sales. You can address ignorance about supply chain conditions by sharing supply information and capacity. You can reduce order size flexibility and implement capacity reservations to limit unrestricted ordering. One example is to reserve a predetermined quantity for one year and specify the quantity shortly before it’s needed. However, the order quantities must equal the reserved quantity.
You can take countermeasures against fluctuating prices. For example, high-low pricing could be replaced by everyday low price (EDLP). You can set up special purchase orders to provide regular ordering to help you better coordinate delivery/purchase.
Countermeasures to inaccuracies in demand forecasts – Access to point of sale data (POS) can help to address the lack of demand visibility. Overexaggerated demand can be overcome through single replenishment control or Vendor Managed Inventory. It is economically more advantageous to reduce long lead time.
There are no easy ways to obtain free returns policies. These policies must often be restricted or prohibited.
Understanding the Bullwhip in Supply Chains. Today’s Wall Street Journal features a remarkable front-page story about the bullwhip effect. It is starting to show up in businesses as the economy recovers. What is the Bullwhip Effect? According to the WSJ, this phenomenon is when companies drastically reduce or increase inventories. Economists refer to it as a bullwhip, because even small increases of demand can lead to a large increase in the demand for parts further down the supply chains>>.
The bullwhip affect is explained in more detail here This article by V. Padmanabhan, Hau L., and SeungjinWhang explains the bullwhip phenomenon and the reasons it occurs. Companies that wish to reduce the bullwhip effect must think about changing the structure and processes of their supply chains to increase incentives. The bullwhip effect is explained by the authors, along with ways to combat it.
