Supply Chain and Information Systems, Bullwhip Effect
Supply Chain Management Effective management
of supply chain processes are important to improving service levels to
customers and retailers and lowering costs incurred by an organization. Through their research, Simchi-Levi
& Kaminsky, (2008) point out that proper Supply chain management is the set
of tactics an organization employs to resourcefully integrate manufacturers,
warehouses, suppliers, and stores, in order to ensure that products are manufactured
and allocated at the precise capacities, to the correct locations, and at the precise
time, in order to reduce system wide expenses while sustaining service level
requirements. Furthermore, risk and uncertainty are inherent in every supply
chain. Machines are prone to breaking down and therefore cause delays along the supply chain. Travel times can vary and be delayed
due to poor weather conditions, trucks breaking down, and even political unrest
in certain nations. Furthermore, forecasts on customer demand are never 100%
accurate and they are always wrong. However, even when customer demand for
specific products shows no historic variation and remains consistent, an
occurrence called the “bullwhip effect” poses a threat to organizations along
the supply chain. Here's a link to a scholarly journal which helps explain the Bullwhip Effect in its entirety. Bullwhip Effect The bullwhip effect is an occurrence when, order
procedures are established on percentage of overall demand subsequently lead to
sizeable variations in that demand from the vendor up the supply chain across
the raw materials supplier, manufacturer, wholesaler, and distributor (Johnson, Leenders & Flynn, 2011). Organizations and scholars have studied methods to combat the bullwhip effect occurrence, and have concluded that four key methods to curtail the overall effects of the bullwhip effect are:
Here's a link to an article from NC State University, which further explains how to combat the bullwhip effect. Here is another informative link about the severity of the bullwhip effect along the supply chain. The research was done by Seungjin Whang and colleague Hau Lee at the Stanford Business School. The "Beer Distribution Game" is a widely used game created by a group of MIT professors in the 1960's. It is an interactive game used today in many universities with teams competing to distribute beer along each level of the supply chain eg: (Manufacturers, Wholesalers, Distributors, and retailers). Here is a link to Wikipedia's explanation of the "Beer Distribution Game": References:
Johnson, P., Leenders, M. & Flynn, A. (2011). Purchasing and Supply Management. Fourteenth Edition. New York, NY. McGraw-Hill/Irwin Simchi-Levi, D. & Kaminski, P. (2008). Designing and Managing the Supply Chain. Concepts, Strategies and Case Studies. Third Edition. New York, NY. McGraw-Hill/Irwin | Another insightful video is of Professor Hau Lee known as, "The Supply Chain Master" of The Stanford Graduate School of Business. It is a very informative and lively explanation by Professor Lee of what the bullwhip effect is. Please feel free to enjoy watching it! Here's another short video that illustrates the bullwhip effect along the supply chain. Please feel free to enjoy watching it! |