Transcript
Page 1: The Bull-Whip effect

THE BULL-WHIP EFFECT EXPLAINED

Page 2: The Bull-Whip effect

QUESTIONS :

a) WHAT IS THE BULL-WHIP EFFECT AND EXPLAIN

ITS IMPACT.

b) WHAT ARE THE METHODS OF COPING THE

BULL-WHIP EFFECT

Page 3: The Bull-Whip effect

THE BULL-WHIP EFFECT

The bullwhip effect is the uncertainty caused from

distorted information flowing up and down the supply

chain.

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CAUSES OF THE BULL-WHIP EFFECT

Demand forecast updating

Order batching

Price fluctuation

Rationing and shortage gaming

Un-forecasted sales promotions

Customers turning back sales orders

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EFFECTS OF THE BULL-WHIP EFFECT

Excess inventories

Unnecessary costs

Tense supplier relationships

Stock outs

Increased wastages

Changes in buying patterns

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SUPPLY CHAIN IN EQUILIBRIUM

Customer demand forecast = 10 units

miller baker retailer consumer

Products &

ServicesProducts &

Services

Products &

Services

Information

Cash

Key: = Inventory Levels

10 Units 10 Units 10 Units

10 Units 10 Units 10 Units

Retailers are selling product at a constant rate and price. Firms along the

supply chain are able to set their inventory to meet demand.

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SUPPLY CHAIN DISRUPTED

Customer Demand forecast = 20 units

millerbaker

retailer

consumer

Products &

ServicesProducts &

ServicesProducts &

Services

Information Flow

Cash Flow

Key: = Inventory Levels

160 Units 80 Units 40 Units

80 Units 40 Units 20 Units

As demand increases, the retailer decides to accommodate the forecasted demand and increase inventory

to buffer against unforeseen problems in demand. Each step along the supply chain increases their

inventory to accommodate demand fluctuations. The top of the supply chain receives the harshest impact

of the whip effect.

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METHODS OF COPING WITH THE BULL-WHIP EFFECT

Improve communication along the supply chain

Improve sources of forecast data

Share Information

establish a demand-driven supply chain which reacts to actual customer orders

Break order batches

Stabilize prices

Eliminate gaming in shortage situations

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IMPROVE COMMUNICATION ALONG THE SUPPLY CHAIN

• Retailers notifying firms upstream of sales promotions will help clarify demand signals

from consumers

• Improved information will improve demand forecasts upstream in the supply chain

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IMPROVE SOURCES OF FORECAST DATA

• Firms can use data from Point of Sale computer systems to derive data from

forecasting

• Firms along the supply chain can use EDI systems to retrieve data on items

that are legitimately being purchased by customers

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SHARE INFORMATION

• Lack of visibility = rise in costs. Encourage information sharing among your

partners. Be a catalyst and good example of information sharing. Work with

suppliers on releasing lead times and improving on time delivery.

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ESTABLISH A DEMAND-DRIVEN SUPPLY CHAIN WHICH REACTS TO ACTUAL CUSTOMER ORDERS• In manufacturing, this concept is called kanban. This model has been successfully

implemented in Wal-Mart's distribution system. Individual Wal-Mart stores transmit

point-of-sale (POS) data from the cash register back to corporate headquarters several

times a day. This demand information is used to queue shipments from the Wal-Mart

distribution centre to the store and from the supplier to the Wal-Mart distribution

centre. The result is near-perfect visibility of customer demand and inventory

movement throughout the supply chain. Better information leads to better inventory

positioning and lower costs throughout the supply chain.

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BREAK ORDER BATCHES

• Use EDI Exchange to reduce the cost of placing orders. Place orders more

frequently. Ship assortments of products in a shipload to counter high

transportation costs or use a third party logistics company to handle

shipping.

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STABILIZE PRICES

• Manufacturers reduce the frequency and level of wholesale price discounting to keep

customers from stockpiling

• Work to develop consistent pricing of products to avoid demand fluctuations from the

sale of inexpensive products.

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ELIMINATE GAMING IN SHORTAGE SITUATIONS

• Suppliers should allocate products based on past sales numbers.

• Eliminate return policies so retailers can't cancel orders.

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Thank you..!!

The end


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