the bull-whip effect

Download The Bull-Whip effect

Post on 02-Jul-2015




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A well explained presentation on one of the major Supply Chain challenges, The Bull-Whip Effect, outlining the major causes as well as the methods of coping with the Bull-Whip Effect.



2. QUESTIONS : a) WHAT IS THE BULL-WHIP EFFECT AND EXPLAIN ITS IMPACT. b) WHAT ARE THE METHODS OF COPING THE BULL-WHIP EFFECT 3. THE BULL-WHIP EFFECT The bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain. 4. 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 5. EFFECTS OF THE BULL-WHIP EFFECT Excess inventories Unnecessary costs Tense supplier relationships Stock outs Increased wastages Changes in buying patterns 6. SUPPLY CHAIN IN EQUILIBRIUM Customer demand forecast = 10 units miller baker retailer consumer Products & Services Products & 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. 7. SUPPLY CHAIN DISRUPTED Customer Demand forecast = 20 units miller baker retailer consumer Products & Services Products & Services Products & 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. 8. 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 9. 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 10. 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 11. 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. 12. 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. 13. 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. 14. 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. 15. ELIMINATE GAMING IN SHORTAGE SITUATIONS Suppliers should allocate products based on past sales numbers. Eliminate return policies so retailers can't cancel orders. 16. Thank you..!! The end