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INFORMATION DISTORTION IN A

SUPPLY CHAIN: THE BULLWHIP

EFFECT

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GROUP 3

Farze- An- Islam 121 0481 060Progga 121 0889 660

S

Fateeha Zannat 121 0795 060

Tanjin 111 0098 060

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Information transferred tends tobe-

-distorted

-misguide upstream

members

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Information flows among the

members of supply chain

Manufacturer Distributor Wholesaler Retailer

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Information distortion impact on-

Production

scheduling

Inventory control

Delivery plans

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Retailers order do notmatch with actual retailsales.

Orders to supplier haslarger variance than

sales to buyer.

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4 Sources of Bull-whip effect

Demand

signalprocessing

Rationinggame

Orderbatching

Pricevariations

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A multi-period inventory system operated under a

periodic review policy

Where,

(i)demand: stationary(ii)supply : infinite with a fixed lead time

(iii)fixed order cost: No

(iv)product price: stationary over time

An Idealized Situation

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Demand: non-stationary

Order-up-to point : non-stationary

Project the demand pattern based on-

Distributors rely on retailers orders to forecast demand

Manufacturers rely on distributors orders

Demand Signal Processing

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Supplier loses track of the true demand patternat the retail level.

Long lead times lead to greater fluctuations inthe order quantities

Multiple Forecasting

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Information sharing among members of the chain

Avoiding multiple demand forecast updates

Vendor Managed

Reduction in lead times

Strategies to reduce- Demand

Signal Processing

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If Demand > Production Capacity retailer will issue

an exaggerated order more than their actualdemands.

Then the demand information will be distortedfurther if retailers are allowed to cancel orders whentheir actual demand is satisfied .

Rationing game

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Allocate scarce products in proportion to past

sales records

Share capacity and inventory information

Enforce more strict cancellation and returnpolicies.

Strategies to reduce- Rationing

game

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Random Ordering

Demands from retailers are independent

Positively Correlated Ordering

All the retailers order in the same period

Balanced Ordering

Orders from different retailers are evenly distributed in time

Forms of Order Batching

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Counter measuresto orderbatching

High order cost:

Electronic Data Interchange (EDI)

Computer aided ordering (CAO)

Full truck load economics: Third-party logistics

Assorted truckloads.

Random or correlated ordering: Regular delivery appointments

More frequent ordering

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Price Variations

When a manufacturer offers an attractive price, retailersengage in "forward buy" arrangements in which items arebought in advance of requirements

Retailers buy in larger quantities that exceeds their actualneeds. When the product's price returns to normal, they stop

buying until the inventory is depleted.

The customer's buying pattern does not reflect itsconsumption pattern.

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