Philosophy / Bullwhip Effect

Bullwhip Effect

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Autor:  anton  15 November 2010
Tags:  Bullwhip,  Effect
Words: 542   |   Pages: 3
Views: 416

The Bullwhip Effect in Supply Chains

Bullwhip Effect Happen in many companies in the world like the case of (P&G on the diapers and the case of HP for one of its printer). Before HP rely on the sales order from the reseller to make product forecast, plan capacity, control inventory, and schedule production this cause big variation in demand. Then the variation makes more problems like excessive inventory, poor customer service, uncertainty production planning, and high costs for corrections. This distorted information that is happened led every entity in the supply chain to stock pile. Because, the ordering pattern is commonly the upstream sites are always greater than those on the downstream site. This why the company need to first understand what creates the bullwhip effect so they can counteract it.

Cause of bullwhip effect may cause by human behavior, such as misconception about inventory and demand information. However the article says it in contrast, that it is cause by consequence of the player’s rational behavior within the supply chain’s infrastructure. They indentified four major causes:

1. Demand forecast updating, from the order history

2. Order batching, the customer’s order on the same time during the period.

3. Price fluctuation may cause by the special promotion that make customer buy in bigger quantity than needed

4. Rationing and Shortage gaming, When the demand exceed supply rations the product to customers is happened.

So to counteract these problems people must understand the cause of the bullwhip effect, this help the managers to find strategies to mitigate it. Many companies have begun to implement innovative program, however it only partially solve the problems. So they try to examine how company tackles each of the four causes with using operational efficiency (reduced cost and lead time) that are:

1. Avoid Multiple Demand Forecast Updates: make demand data at downstream site available to the upstream site. So both sites can update their forecast with the same raw data. Long resupply lead times can aggravate the bullwhip effect, so the operation efficiency is needed like using just in time replenishment.

2. Break Order Batches: devise strategies that lead to smaller bathes or more frequent resupply. Make the customers spread their periodic orders or replenishment evenly over time also reduces the negative effect of batching. One of the way is coordinate their resupply with their customers

3. Stabilize Prices: Reduce both of the frequency and the level of wholesale price discount is simplest way to overcome forward buying and diversions. Using ABC system help to recognize the excessive cost, hence ABC system help companies implement EDLP(everyday low price) strategy

4. Eliminate Gaming in Shortage Situations: Allocate in proportion to past sales record than based on orders make customers have no incentive to exaggerate their orders. Other way is work with customers to place order in advance of the sales season this help to adjust the production capacity and scheduling. Enforce more stringent cancelation policies also help so retailer will not continue to exaggerate their needs and cancel orders.

In Conclusion, Companies can effectively counteract the effect by thoroughly understanding its underlying causes. Like what P&G done by implementing innovative strategies that pose new challenge. It’s the choice for the company to let bullwhip effect happen or conquer it.

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