View
220
Download
0
Category
Preview:
Citation preview
8/3/2019 Bull Whip Effect And Its Impact In Supply
1/19
Presented By:-
Suman Nath(07)
Nirupoma Singh(20)
Subhashish Biswas(31)
Sumanjit Deb(32)
Debottam Dutta(33)
8/3/2019 Bull Whip Effect And Its Impact In Supply
2/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
3/19
Supply Chain Stages
Component/ Raw material suppliers
Manufacturers
Distributer Wholesaler
Retailers
EndC
ustomers
8/3/2019 Bull Whip Effect And Its Impact In Supply
4/19
Objectives of SCM
Supply chain planning
Procurement
Inventory management
Packaging
Facility design
Warehousing
Transportation
Reverse logistics
Logistics Systems
Customer service and marketing
8/3/2019 Bull Whip Effect And Its Impact In Supply
5/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
6/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
7/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
8/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
9/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
10/19
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
11/19
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
8/3/2019 Bull Whip Effect And Its Impact In Supply
12/19
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
8/3/2019 Bull Whip Effect And Its Impact In Supply
13/19
Lead time reduction
Information lead time can be reduced
using EDIElectric Data Interchange
orCAOComputer Assisted Ordering. QRQuick Response in apparel
industry
8/3/2019 Bull Whip Effect And Its Impact In Supply
14/19
Batch ordering
Reduction of fixed ordering cost using
EDI and CAO 3PLThird Party Logistics
VMI
8/3/2019 Bull Whip Effect And Its Impact In Supply
15/19
Variability of Price
EDLP: Every Day Low PriceP&G
Remark that the same strategy does not
work well in Japan.
8/3/2019 Bull Whip Effect And Its Impact In Supply
16/19
.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
8/3/2019 Bull Whip Effect And Its Impact In Supply
17/19
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
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
18/19
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
160 Units 80 Units 40 Units
80 Units 40 Units 20 Units
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.
8/3/2019 Bull Whip Effect And Its Impact In Supply
19/19
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.
Recommended