Kulicke and Soffa Industries Supply Chain

International Supply Chain GEST-S472

Assignment 1

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Mamoun Touzani                                                                389078

1)        Describe in your own words the causes of the bullwhip effect. Describe the process and the rational for each of these causes.

One of the meanings of a good supply chain is the information flow between the different actors of the supply chain. The bullwhip effect refers to an unexpected distortion of a supply chain caused by repeated variation in demand.

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Source: [http://www.scribd.com/doc/17392509/Bullwhip-Effect] 

This figure illustrates an example of the Bullwhip Effect.  As we can see, the more steps they are between the consumer and the supplier, the larger the variation gets. The unplanned demand from Warehouse oscillates back to the Distribution Center and finally to the Supplier magnifying through each level of the supply chain.

Therefore, small changes in customer demand can lead to a mismatch between orders and sales due to an incorrect forecast.

Indeed, the supply chain will over or underestimate the product demand resulting in a significant fluctuation.

Thus, the effect generating an alteration in consumer behavior will cause the Bullwhip Effect.

The first cause is the lead-time caused by a previous variation in demand called by the article: the demand signal processing. Managers forecast and adjust their plans based on downstream orders. However, it might not reflect the real demand because of the lead-time. Actually, manager should keep safety stocks if the lead-time is important. But first, it is the cause of inefficiency in the supply chain because it requires extra additional cost and finally they increase the bullwhip effect.

The second one is the rationing game. It occurs when products demand exceeds supply manufacturers ration products or when customers exaggerate orders if they know inventory will be in short supply resulting in a cancellation of other orders. This overreaction will be explained in the 2nd question.  This multiple or “phantom “ordering generates a false demand lead to Bullwhip Effect.

        The third one is order batching. Companies place orders in batches to avoid the cost of processing orders or to avoid the high transportation costs but it is disrupting supplier’s demand forecast.

        Finally, there is the price variation. Prices discounts impact positively customers’ demand. But the sudden surge of demand result on a mismatch between buying patterns and consumption pattern. Price fluctuation creates a boom-an-bust cycle aggravate the Bullwhip Effect.

2)        Describe more in-depth the process and the rational of Hoarding and phantom ordering in the supply chain. What is causing this? Is this a behavioral process? Please explain in your own words Sterman’s view.

Rational hoarding and phantom ordering are related to rationing and shortage gaming, which is one of the 4 causes of Bullwhip Effect listed below.