pd 3 information flow bull whip

8/6/2019 PD 3 Information Flow Bull Whip

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Ashwin BhatiaPhysical Distribution & Channel Mgmt




- Benjamin DisraeliUK PM (1874-1880)

"Change is inevitable.

Change is constant."

³Change is Rapid´




Enterprises today operate in an environment of

increasing competition and decreasing customer loyalty.

Having endless options in price, choice, availability, and

so on puts the consumer in the driver's seat.




Power is shifting from the sellers to the customer

The customer expects what they want, when, where, and how

they want it -- no excuses !




shrinking adoption rate




³Companies must be able to understand the impact of

continuously shifting demand andquickly determine alternate courses of action to avoid any

inventory surplus or shortage conditions.´

Demand Volatility




Causes of Demand Volatility

Rapid technological changes

Changes in customer orders

Changes in customer preferences

Product revisions

New sales opportunities

Reduced customer loyalty

Increased competition




Effect of Demand Volatility

Out-of-stock resulting in revenue & customer loss

Long, unknown or unreliable lead times for replenishment

Inventories with discontinued and obsolete units that have no

demand at all

Overstock of slow-moving, active SKUs that produce low grossmargin return on the investment and the associated lowinventory turnover.

Non-optimum inventory deployment, which means there is anappropriate total inventory level but it is not positioned in syncwith the demand, requiring both transportation cost and transittime to serve customers




Demand Volatility

What causes Overstock or Out-of-Stock

forecast inaccuracy

safety stock policies

lead times

stocking policies




The traditional approach to managing demandvolatility attempts to predict and prepare for

foreseeable changes.

Plans reviewed monthly/quarterly/yearly to anticipate

changes in demand and supply and to enableresponses when they occur

Traditional approaches require too much time tocreate a new plan. The tools used simply cannot see

root causes and foresee downstream impacts of changes

Demand Volatility




Assume a customer has demanded a future order to be delivered

TOD AY !

Answer these:

What effect will this new order have on purchases I have already

made?

What will the cost be for the inventory left over as a result of my order change?

How will specific orders (and customers) that are part of the tradeoff

process be impacted?

How will it affect on-time delivery averages if I have to delay anexisting order?

How will it affect overall profitability if I have to drop-ship this order or

dispatch it by air freight?




Implement a multi-tier, multi-enterprise visibility solutionthat allows for near real-time demand data to be shareddownstream (alert suppliers when demand unexpectedlyrises and falls, and allow partners to collaborate on the bestway to respond to unexpected demand spikes and drops)

The system should be able to tap into the relevant CRM,ERP, SCM, POS, forecasting, and demand planning tools andnot require manual re-entry of data

Consolidate the data for easy "what-if" analysis andreporting

So, how do you Manage Demand Volatility ?




As expected, babies use diapers at a fairly steady and predictable rate, and

retail sales are quite uniform. But, P&G found that each retailer bases his own

orders on his own slightly exaggerated forecast, thereby distorting the

information about real demand. Wholesalers' orders to the P&G diaper factory

fluctuated even more. And P&G¶s orders to 3M and other materials suppliers

fluctuated even more.




Order Variability is amplified up the supply chain; upstreamechelons face higher variability

The Bullwhip Effect

P&G Retailers Customers




Distorted information, or the lack of information, is the main causeof the ³bullwhip effect´ (coined by P & G Executives)




Causes of Bullwhip Effect

Distorted or lack of information flowNeglecting to order to reduce inventory

Overreaction to critically low inventory

Lack of communication up & down the supply chain

Lack of co-ordination up & down the supply chain

Delay times for information & material flows

Forecasting inaccuracies: errors at each stage MULTIPLY(eg: 97% * 97% * 97% * 97% = 88.5 % !!)

Shortage Gaming: Customers order more than they needduring periods of shortage




� Promotional sales

� Volume and Transportation Discounts

� Inflated orders(IBM Aptiva orders increased by 2-3 times whenretailers thought that IBM would be out of stockover Christmas)

� Long cycle times

Causes of Bullwhip Effect




Effects of Bullwhip Effect

� Increased safety stock

� Reduced service level

�Inefficient allocation of resources

� Increased transportation costs

� The observed effect becomes worse in

multi-stage supply chains.




Bullwhip Effect in Production




Information sharing enhances SC in two fundamental

ways

It enables supplier to respond consumer demand quicker

by appropriately scheduling production and replenishing

retailer`s inventoryx Continuous Replenishment Program (CRP)

x Vendor Managed Inventory (VMI)

It improves accuracy of demand forecast

x Collaborative Forecasting and Replenishment (CF AR) facilitates

sharing of both short term and long term demand forecasts between

manufacturer and retailer




` 3M, P&G, Wal-Mart




Controlling the Bullwhip Effect

Extensive use of IT

& internet to facilitate real-time data visibilityPOS data accessed not just by manufacturer, but even suppliers

VMI (Vendor managed Inventory)

Share capacity & production information

EDI (Electronic Data Interchange) to track shipments




Shirt maker in HK

Forecasting & inventory management is outsourced to the

shirt maker in Hong Kong.

He can now decide how many shirts to make, what colour,style, design.

JC Penny Corporate decision makers bypassed.

JC Penny Store

pd 3 information flow bull whip

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