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  • 8/2/2019 Bull Effect


  • 8/2/2019 Bull Effect


    Supply Chain Management spans all movement andstorage of raw materials, work-in-process inventory,and finished goods from point of origin to point ofconsumption (supply chain).

    In essence, Supply Chain Management integratessupply and demand management within and acrosscompanies.

  • 8/2/2019 Bull Effect



    Information flow

    Large number of touch-points

    Lead time


    Oil prices

    Real-estate Manpower


    Working capital

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    The objective of supply chain management is toprovide a high velocity flow of high quality,relevant information that will enable suppliers

    to provide an uninterrupted and preciselytimed flow of materials to customers.

    Stock outs can cause havoc up and down thesupply chain.

  • 8/2/2019 Bull Effect


    luctuations in orders increase as they move upthe supply chain from retailers to wholesalersto manufacturers to suppliers.

    It distorts demand information within thesupply chain, with each stage having adifferent estimate of what demands looks like.

    These supply chain distortions is called


  • 8/2/2019 Bull Effect


  • 8/2/2019 Bull Effect


    Order batching

    Shortage gaming

    Free return policies

    Demand forecast inaccuracies

  • 8/2/2019 Bull Effect


    Larger orders result in more variance.

    Order batching occurs in an effort to reduce ordering costs,to take advantage of transportation economics such as fulltruck load economies, and to benefit from sales incentives.

    Periodic Ordering Weekly, Fortnightly, Monthly etc. Creates spikes in order sizes, disrupting suppliers demand

    forecasts Benefits from transportation & distribution side

    Push Ordering Orders are pushed by sales personnel Done usually at monthly/quarterly sales review and demand

    estimates from sales team This results in uneven spread of customer orders resulting in the

    bullwhip effect

  • 8/2/2019 Bull Effect


    When demand exceeds supply, manufacture ration suppliesto distributors.

    customers order more than they need during a period ofshort supply, hoping that the partial shipments they receivewill be sufficient.

    This results in distributors ordering more than they need, tofulfill the demand.

    When the market cools down, orders start getting cancelled,

    excess inventory piles up, leading to the bullwhip effect.

    Real demand is never known in such market conditions.

    Most commonly effected is the IT hardware & telecom


  • 8/2/2019 Bull Effect


    Forward buys; discount sales; offer merchandise;coupons; rebates; end of season sales.

    Customers buy in bulk.

    But the buying pattern never matches theconsumption pattern.

    This results in overstocking at the far ends of thesupply chain and also results in idle capacity

  • 8/2/2019 Bull Effect


    Everybody in the chain adds a certain percentage to thedemand estimates. The result is no visibility of truecustomer demand.


    orecasting is based on order history from companysimmediate customer

    Often, forecasts are made at whims & fancies of managers

    Upstream manager updates his/her demand forecasts basedon customer demand variations, longer lead times, pricefluctuations etc.

    Techniques like exponential smoothing creates biggerswings at the suppliers end

  • 8/2/2019 Bull Effect


    Overreaction to backlogs.

    Neglecting to order in an attempt to reduce


    No communication up and down the supply chain.

    No coordination up and down the supply chain.

    Delay times for information and material flow

  • 8/2/2019 Bull Effect


  • 8/2/2019 Bull Effect


    Worse quality. Quirky, unplanned

    changes in productionand delivery schedulesdisrupt and subvertcontrol processes,begetting diverse qualityproblems that provecostly to rectify.

    Poorer service. Irregular, unpredictable

    production and deliveryschedules also lengthenlead time, causing delayand customerdissatisfaction

  • 8/2/2019 Bull Effect


    Minimize the cycle time in receiving projected andactual demand information.

    Establish the monitoring of actual demand for product

    to as near a real time basis as possible. Understand product demand patterns at each stage of

    the supply chain.

    Increase the frequency and quality of collaborationthrough shared demand information.

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    Minimize or eliminate information queues that createinformation flow delays.

    Eliminate inventory replenishment methods that

    launch demand lumps into the supply chain. Eliminate incentives for customers that directly cause

    demand accumulation and order staging prior to areplenishment request, such as volume transportationdiscounts.

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    Minimize incentivized promotions that will causecustomers to delay orders and thereby interruptsmoother ordering patterns.

    Offer your products at consistently good prices tominimize buying surges brought on by temporarypromotional discounts.

    Identify, and preferably, eliminate the cause ofcustomer order reductions or cancellations.

  • 8/2/2019 Bull Effect


    Popularized in the late 1980s by Wal-Mart andProcter & Gamble, VMI became one of the keyprograms in the grocery industrys pursuit of

    efficient consumer response

    and the garmentindustrys quick response.

    Successful VMI initiatives have beentrumpeted by other companies in the United

    States, including Campbell Soup and Johnson& Johnson, and by European firms like Barilla(the pasta manufacturer).

  • 8/2/2019 Bull Effect



    The supplierusually the manufacturer butsometimes a reseller or distributormakes the maininventory replenishment decisions for theconsuming organization. The supplier monitors the buyers inventory levels

    (physically or via electronic messaging) and makes periodicresupply decisions regarding order quantities, shipping, andtiming.

    Transactions customarily initiated by the buyer (like

    purchase orders) are initiated by the supplier instead. The purchase order acknowledgment from the supplier may

    be the first indication that a transaction is taking place; anadvance shipping notice informs the buyer of materials intransit.

  • 8/2/2019 Bull Effect


    Thank you


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