bull whip effect and it’s impact in supply

8/3/2019 Bull Whip Effect And Its Impact In Supply

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Presented By:-

Suman Nath(07)

Nirupoma Singh(20)

Subhashish Biswas(31)

Sumanjit Deb(32)

Debottam Dutta(33)


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What is Supply chain?

A supply chain is a network of facilities and

distribution options that performs the functions of

procurement of materials, transformation of these

materials into intermediate and finished products,and the distribution of these finished products to

customers.

Supply chains exist in both service and

manufacturing organizations, although the

complexity of the chain may vary greatly from

industry to industry and firm to firm.


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Supply Chain Stages

Component/ Raw material suppliers

Manufacturers

Distributer Wholesaler

Retailers

EndC

ustomers


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Objectives of SCM

Supply chain planning

Procurement

Inventory management

Packaging

Facility design

Warehousing

Transportation

Reverse logistics

Logistics Systems

Customer service and marketing


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What is the Bullwhip Effect?

The term Bullwhip Effect was coined by Procter & Gamble

management who noticed an amplification of information

distortion as order information travelled up the supply chain.

The Bullwhip Effect/Whiplash Effectis the phenomenon insupply chain whereby ordering patterns experience

increasing variance as it proceeds upstream in the chain.

The Bullwhip Effect can cause costly disruptions to upstream

members of a supply chain as the variance in ordersincreases.


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Causes of bullwhip effect

Demand Forecasting

Suppose the manager of a retailer observed a larger demand

(sales) than expected.

He increased the inventory level because he expected moredemand in the future (forecasting).

The manager of his wholesaler observed more demand (some of

which are not actual demand) than usual and increased his

inventory.

This caused more (non-real) demand to his maker; the manager of

the maker increased his inventory, and so on. This is the basic

reason of the bull whip effect.


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Lead time

With longer lead times, a small change in the estimate

of demand variability implies a significant change in

safety stock, reorder level, and thus in order quantities.

Thus a longer lead time leads to an increase in

variability and the bull whip effect.


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Batch Ordering

When using a min-max inventory policy, then the

wholesaler will observe a large order, followed by

several periods of no orders, followed by another

large order, and so on.

The wholesaler sees a distorted and highly variable

pattern of orders.

Thus, batch ordering increases the bull whip effect.


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Variability of Price

Retailers (or wholesalers or makers) offer

promotions and discounts at certain times or for

certain quantities.

Retailers (or customers) often attempt to stock

up when prices are lower.

It increases the variability of demands and the

bull whip effect.


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Lack of supply and supply

allocation When retailers suspect that a product will

be in short supply, and therefore anticipate

receiving supply proportional to the amount

ordered (supply allocation).

When the period of shortage is over, the

retailer goes back to its standard orders,leading to all kinds of distortions and

variations.


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The Consequences of Bullwhip

effect Manufacturing cost o

Inventory cost o

Replenishment lead time o Transportation cost o

Labor cost for shipping and receiving o

Level of product availability q Profitability q


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Coping with the Bullwhip Effect

Demand uncertainity

Centralizing demand information; by

providing each stage of the supply chain withcomplete information on actual customerdemand (POS: Point-Of-Sales data

Continuous replenishment

VMIVendor Managed Inventory: VMI


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Lead time reduction

Information lead time can be reduced

using EDIElectric Data Interchange

orCAOComputer Assisted Ordering. QRQuick Response in apparel

industry


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Batch ordering

Reduction of fixed ordering cost using

EDI and CAO 3PLThird Party Logistics

VMI


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Variability of Price

EDLP: Every Day Low PriceP&G

Remark that the same strategy does not

work well in Japan.


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.Lack of supply and supply

allocationAllocate the lacking demand due to

sales volume and/or market share

instead of order volume.General

MotorsSaturn, Hewlett-Packard

Share the inventory and production

information of makers with retailers and

wholesalers.Hewlett-PackardMotorola


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Supply Chain Without Bullwhip Effect

Customer demand forecast = 10 units

Suppliers Producers Distributors Retailers

Products &

Services

Products &

Services

Products &

Services

Information

Cash

Key: = Inventory Levels

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 Bullwhip Effect

Customer Demand forecast = 20 units

Suppliers ProducersDistributors

Retailers

Products &

Services

Products &

Services

Products &

Services

Information Flow

Cash Flow

Key: = Inventory Levels



As demand increases, the distributor 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 (double in this example) to

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

impact of the whip effect.


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Conclusion:-Demand distortion arise in a SC as a consequence of the optimizing behavior

of the various players in the SC. This self optimization behavior can prove tobe very disastrous for the SC as a whole. Companies can effectively counteract

the bullwhip effect by a thorough understanding of its underlying causes. The

company desirous of counteracting the bullwhip effect will have to change the

ways they think about and do their business. These would include sharing of

information across the members of the SC, consistent optimal method of

demand forecasting , deceased dependence on price promotions as marketing

strategy, and use of third-party logistics for order satisfaction. The net benefits

from efficient SCM should be re distributed among the various members to

provide an incentive to effect such a change. The choice for the companies is

clear- either let the bullwhip effect paralyze you or find ways to conquer it.

bull whip effect and it’s impact in supply

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