The Bullwhip Effect 1

Slides 3The Bullwhip Effect

Global Supply Chain Management

The Bullwhip Effect Slide 2

Higher variability in orders placed by computer retailer to wholesaler than in actual sales

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Increasing variability of orders up the supply chain

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Fluctuations of Inventory and Backorders throughout the Supply Chain (Bullwhip)

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Conclusion….

Order variability is amplified up the supply chain - upstream entities face higher variability

What you see is not what they (can) see

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What are the Causes….

Inaccurate demand forecasts Long cycle times

Volume and transportation discounts Promotional sales Changes in prices Inflated orders

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Consequences…. Increased inventory levels (higher costs) Inefficient allocation of resources (people,

trucks, warehouses - higher costs)

Reduced service levels: demand cannot be fulfilled (lower revenues)

Products unsold or sold at discount (lower revenues)

The Bullwhip Effect Slide 9

Fixing the Bullwhip Effect (1)

Actions related to “inaccurate demand forecasts”– Forecast demand using adequate info and

forecasting techniques – Plan promotions well and communicate them

through chain– Use every-day-low-(stable) - prices strategy– Avoid panic ordering

The Bullwhip Effect Slide 10

Fixing the Bullwhip Effect (2) Actions related to “long cycle times”

– Reduce information lead times by centralizing demand information

– Integrate truly with a vendor managed inventory approach

– Reduce production lead times (supplies, manufacturing, assembly)

– Reduce delivery lead times (from supplier to manufacturer/assembler through distributor, wholesaler, retailers to customer)

The Bullwhip Effect Slide 11

Case: Malt Beverage Game You are a Malt Beverage retailer and are

ordering from a manufacturer (see case) Play the corresponding Beergame

– try to satisfy demand from your customers In the meantime

– try to keep stock at a ‘safety level’ of 12 What is the key problem ?

The Bullwhip Effect Slide 12

Case: Order Model

You see a single player in the supply chain, run the corresponding order model

You see two players in the supply chain, run the corresponding order model

What is are the key problems? How can adequate ordering be achieved? Or: what would be an adequate strategy?