THE BULLWHIP EFFECT IN SUPPLY CHAIN

THE BULLWHIP EFFECT IN SUPPLY CHAIN Predicting of demand is the significant tool in order the production planning and provisions, managing the surface or creating levels of personalized services. Predicting demand by many technologies is relying on earlier data and their importance is setting up from patterns utilized heretofore earlier of demand for near future. Of values predicted with regard to high responsiveness for of the ones most current, this approach is obtaining in general high (low) values of demand predicted in accordance to periods high (low) of demand. It is being transferred by demand of clients to wholesalers, distributors or producers in the form of the retail order which is current demand for partners of the chain of supplies of the higher mark at the same time. Forecasts of demand are rarely in practice when thorough and what's more they are still refer to the poor quality higher marks in the chain of supplies. In the majority of chains of supplies, individual participants in the chain are trying to rationalize sizes of one's orders in accordance to economic decisions, what the distortion of real demand of clients is being created, through as well as bad redirection of demand at members of the chain of supplies from upper of its levels. Promotions and price hesitation also have influence for distorting demand The need to predict demand is increasing errors by chances to perform on every level of the chain of supplies in forecasts - called the bullwhip effect (BWE) this way - for the whole supply chain. The seeming effect is creating it of double predicting [8]. And therefore it is so very important determining the operating system correctly of predicting of demand which the bullwhip effect will limit. The regular, simple model of supply chain and its flows consist such participants as: supplier, producer, intermediary or distributor, retailer and customer, all with products and information flows. This structure is presented below on figure 1. So taking into consideration the above mentioned model it is possible to do the graphical presentation of the bullwhip effect in supply chain especially with pressure on its formation. Based on Figure 1, Figure 2 is presenting how bullwhip effect is establishing itself in supply chain. SUPPLIER PRODUCER DISTRIBUTOR RETAILER CUSTOMER PRODUCTS FLOW INFORMATION FLOW Figure 1. Basic model of supply chain and its flows. DEMAND MAXIMUM MEDIUM MINIMUM SUPPLY CHAIN LINKS SUPPLIER PRODUCER DISTRIBUTOR RETAILER CUSTOMER Figure 2. The bullwhip effect in supply chain. The bullwhip effect is one of key areas managed in applications of administration with chains of supplies of examinations. It is representing the phenomenon where orders are trending to deliverers for being more diversified than what is being sold to buyers but consumer demand is deformed [9.]. This distortion of demand is being spread too for higher stages in the amplified form. High levels of provisions and the weak level of using of the client are posing standard symptoms of the bullwhip effect in the chain of supplies. Keeping production costs and provisions stable and the increase in main times are proving it additionally while margins of the profit and availability of products are falling Presented empirical examinations carried out in literature of the subject [10.] is resulting that the total elimination of the bullwhip effect is able to raise product profitability of about 10%-20%, however decrease in the bullwhip effect is making the possible profitability height of about 5%-10%. Linking the elimination or decrease in the bullwhip effect to the reduction of the other property (e.g. of seasonality) is possible to obtain profitability higher of about 15%-30% in dependence on the specificity of the business environment. The bullwhip effect appeared for the first time in literature as the subject in 1961 year [5.]. The author of the study noticed this effect of batches executed at bargain of simulation analyses. He determined this problem initially with name of increasing of demand. The problem of the bullwhip effect is resulting from the system according to it along with its policy, the organizational structure and delays in flows of materials and information, rather than is coming from external sources. The bullwhip effect is defined as the effect of lack of the information exchange between components of the chain of supplies and of occurring of non-linear interactions which they are causing for the difficulty in administration with them. Other author in 1989 year stated that it was lack of understanding in order giving support to the desire from the side of other participants in the supply chain and the irrational reaction is causing the rise of the bullwhip effect from the side of persons taking decisions up in the made system. Since people have problems with analyzing impact of the decision about to order the system for the complexity and temporary delays between ordering and with receiving, the insertion of trainings would be necessary from the range of the bullwhip effect for managers. From the other side the bullwhip effect is witnessing one way or another even if all participants in the supply chain are behaving in the optimal way unless the supply chain will be rebuilt along with various strategic with mutual relations - the bullwhip effect is able then not to occur [8.]. The bullwhip effect was determined for the simple chain containing the one retailer of supplies and the one producer in the other study [3.], as applying for the correlation of the baulk with current demand but its earlier values while the retailer is fulfilling orders relying only on earlier demand. What's more, delivering size of the bullwhip effect to information to every level of the supply chain about consumer data perhaps to lessen but it will be existing still if information is centralized at every stage about demand. From examinations it is resulting that the bullwhip effect is resulting from four factors chiefly Predicting of demand; predicting of demand by every participant in the supply chain. Forecasts of demand are being elaborated in every link of the supply chain on the basis of historic data and information about changes taking planned publicity drives or other action shaping final consumers' demand into consideration of demand. These forecasts are being modified after receiving orders from clients. Every company is handling other output in reality that is utilizing distorted information about market demand and it is taking supply decisions up on their basis. The long supply chain is amplifying the bullwhip effect with many intermediate links because it is occurring on every level increasing unstable demand, moreover the time of the information transmission and the time of material flows are being prolonged which means the longer response time for changes of demand on the retail market. The decision about liquidation of the part of intermediate links has to be subjected to the detailed analysis comparing the added value to expenses by each agents of their functioning. It is able as a result of the reduction of unprofitable links the new supply chain to rise. Grouping of orders; assembling orders and maintaining provisions are managed according to various principles. The policy depends on making of orders from internal procedures of companies. It often relies on grouping orders and periodic ordering of big parties of commodities. Of reasons for such a procedure perhaps to be a lot of: high expenses of the study and concatenations of the order, transport savings at full transport, discounts and rebates given by deliverers at the purchase of big parties of commodities and dictating the order to size by minimal deliverers, but also policy of the loaning business (e.g. the payment for commodities makes from the end of the month which, they were bought, in after 30 days clients wait with the concatenation of the order to the beginning of the next month). It is causing with the other person applying the accounting period to pushing out of orders by sales reps of the principle towards the end to realize the assumed sales plan. Such activating of sale is working in abrupt influx of orders at the same time, when demand is minimal through the rest of the period. It means this claiming by the majority of the period of heavy stocks and difficulties with in operating orders at the moment of the plurality of demand. Assembling orders by various principles and of completing provisions and rational decisions are managing managers to the fact that the order isn't bringing for information about default demand but about demand from before a few days or even a dozen or so weeks, corrected for necessary size to the completion of provisions. Hesitation of prices; manipulating of prices. Deliverers are offering various promotions for customers periodically in the form of price or quantitative discounts, rebates, coupons, profitable dates of payment which price fluctuations are calling. Companies are reacting to these offers as a rule ordering, without regard to demand, big quantities of products during the promotion. They are assembling the next order from exhausting at the moment oneself of provisions or during the next promotion. It is managing to big changes of purchases which aren't reflecting actual demand reported by lower levels in the supply chain. It is being estimated, that 80% of the transaction refers to purchases between producers but with distributors in the food branch for the future because of the profitable price offer. The rationing and deficits (lack); the rationing and lack of products. When demand reported by clients is exceeding the supply (e.g. within a period of the promotion, in front of expected with the price increase or the change for commodities of taxes and excises), the producer is rationing products that is the part of everyone is realizing orders in dependence on the level of provisions, e.g., if the supply is providing 70% clients are obtaining it out of demand 70% of what they reordered. The clients aware of this procedure, wanting to obtain necessary quantities of commodities which are overstating orders. When demand is stabilizing the part of orders, is being withdrawn at the same time orders are stopping flowing in. The image is effacing it about real for forming of demand, about the actual level of provisions in the whole supply chain and is managing companies in the field of production programs and the allocation and resources centres for taking invalid decisions up by managers. It has this huge importance when entering new products into the market. It is hard for the producer to reassess or demand for novelties is resulting from consumers' interest whether it is the consequence of creating provisions in distribution channels (effect of the fill the supply chain). It is necessary here to notice, that distorting information about demand is also occurring inside companies entering to the composition of the logistic supply chain as a result of their internal policy and procedures. Phenomena are being visited to main reasons for it Taking rational decisions up by managers within the confines of their functional department instead of the department of production is aiming at producing long batches from the point of seeing the company and the whole supply chain, e.g. in order to reach the effect of the scale, is emphasizing in turn of cannons of using of the client for maintaining the high level of provisions to ensure the determined level of using of the client; Predicting within the confines of each departments instead of collecting at the level of the company and a lot of places of decisions having impact of the forecast on execution; manipulating of the forecast of demand of purposes assumed in order reaching, e.g. of sale; Low level of managers' knowledge about the bullwhip effect and about its influence on administration with supply chain; Internal procedures of the company which data are distorting about demand, e.g. which minimal size of the order fitted together by distribution centres and the factory unit, minimal production volumes; Minimizing provisions by the politician in order limiting expenses generated by them in the company; demand for resultant products is supposed as a result of changes of demand to be provided thanks to deliverers' fast reaction rather than behind means of provisions of safety; with effect of the one is maintaining them by transferring of the responsibility for provisions and expenses for deliverers. Somewhat otherwise reasons of rising the bullwhip effect is formulating the author of the other study [9.], who sources of rising this effect is looking for in: processing of demand-induced signals; non-zero main time; grouping of orders; deficits and defects in supplies; Price changes. Taking under is being spent by above-mentioned reasons for the most remark on the remark for predicting of demand. This reason is most often reinspected with the usage of various methods and technologies, as well as models in order predicting the explanation for influence of demand for the bullwhip effect and at the same time for managing the supply chain It is possible to infer from analyzing factors contributing to rising of the bullwhip effect, grasping it in general - this effect is the effect of the bad flow of information in the chain of supplies. Enumerated in literature many tolerating possibilities are for reducing it. For instance three various options are possible whom the usage will reduce in the supply chain or almost will preclude the bullwhip effect change of the design of the physical process (e.g. the reduction of the main time, the elimination of the channel in the supply chain); change of the design of information channels (e.g. delivering data to customers about demand through the supply chain); change of the design of the decision process (e.g. utilizing various rules for completing of provisions). Also, it is possible to enter 10 principles being able to assist the reduction of the bullwhip effect Control system principle: There is a need to select the most appropriate control system best suited to achieving user targets. In turn this will necessitate accessing important supply chain ‘‘states’’ thus taking unnecessary guesswork out of the system; Time compression principle: Every activity in the chain should be undertaken in the minimum time needed to achieve task goals. In practice this means removing non-value added time or ‘‘muda’’ from the system. It also means delivering on time what is actually required i.e. this principle covers process capability; Information transparency principle: Up-to-the minute data free of ‘‘noise’’ and ‘‘bias’’ should be accessed by all ‘‘players’’ in the system. This simultaneously removes information delays and ‘‘double-guessing’’ other ‘‘players’’. Because inventories, WIP, flow rates, and orders are now visible throughout the chain, holistic control by a suitable DSS is now enabled; Echelon elimination principle: There should be the minimum number of echelons appropriate to the goals of the supply chain. The aim is to have not only the optimum level of inventories (maybe in some instances actually zero) but to have these minimum stocks in the right place at the right time; Synchronization principle: In some simulations all events are synchronized so that orders and deliveries are visible at discrete points in time. Some other showed by reference to multiple customers working on re-order principles that this produced an emphatic bullwhip effect subsequently eliminated by continuous ordering synchronized throughout the chain; Multiplier principle: There can be situations where orders directly multiply in a knock-on effect, usually between product manufacturers and their capital equipment suppliers. So if a product manufacturer replaced all its machine tools on a 10 year cycle, it might choose to increase planned capacity by 10% in 1 year, leading to its machine tool orders being doubled, a ‘‘multiplier’’ of 10 to 1; Demand forecast principle: Forecasts may well be a problem simply because they are so rarely right. But attempts to improve the situation by building in safety factors and trend detection capability may result in bullwhip generation. Furthermore demand forecasts need to cope with such phenomenon as ‘‘product substitution’’ where what is actually available is sold in place of stock-out items; Order batching principle: Time phased aggregation of orders lead to ‘‘lumpy’’ deliveries, and hence come back around the ordering loop as ‘‘lumpy’’ orders, which is a certain cause of bullwhip; Price fluctuation principle: Marketing programs may deliberately be designed to empty over-full pipelines. As it has been demonstrated, this effect may cause a backlash by over-ordering so as to take advantage of discounts on offer. When the retailer has enough stock, their orders drop to zero in a typical boom-and-bust scenario; Gaming principle: As it has been described in an actual (or perceived) shortage situation, there will be orders placed to ‘‘hedge’’ against unpredictable supply. Both suppliers and customers may be involved in this game, followed by double-guessing of the form that X has ordered 1000, but it seems like he only needs 400 followed by that Y is slow with his deliveries so if the real need is 500 it is better to order 1200 just in case. So it seems that there is a lot of possibilities to reduce and minimize of existing bullwhip effect in supply chain. Bullwhip has a long tradition for causing disruptions and massive over-swings and under-swings in demand. The former results in quite unnecessary ramping up of production (usually tried at great speed with the generation of corresponding inefficiencies), and the latter necessitates much pain via paid idle time and possible redundancies. The on-costs incurred include ‘‘learning effects’’ for new labour on the upswing, and lay-off costs on the downswing. Because of this cyclical behaviour (well-known in economic circles as the boom-and-bust scenario), the stocks will also fluctuate out-of-phase with demand. So again on the upswing, there will be stock-outs, whilst on the downswing there will be excess stock with a tendency to incur obsolescence and to damage during excessive storage periods. So business is lost because the products are not available when required, and when they are available they are at a higher cost than need be [6.]. Causes of bullwhip effect are in part due to problems in value-added processes, supplier difficulties, demand volatility, and control processes. A way forward is to re-engineer the supply chain to systematically remove all avoidable causes of uncertainty. This requires the effective application of business systems engineering principles involving technical, cultural, organizational, and financial aspects of the project. It is the good idea to use here some programs which are smoothing material flow, smoothing and making transparent information flow, time compression of all processes, holistic controls and the abolition of all interfaces. The consequence might be a movement away from traditional, adversarial operations, towards the minimal bullwhip seamless supply chain scenario. Also there might be used some IT solutions to improve supply chain competitiveness. This includes avoiding bullwhip on-costs by using proven designs to ensure smooth material flow as needed to satisfy the true demands of the marketplace. The present literature study shows that the first step must always be to implement the time compression principle and hence reduce all lead times to their optimum value. It is also axiomatic that these new reduced targets must be consistently achieved if uncertainty is to be reduced.  Effect of lack of co-ordination on performance A supply chain lacks coordination if each stage optimizes only it’s local objectives, without considering the impact on the complete chain. Total supply chain profits are thus less than what could be achieved through coordination’s. Each stage of a supply chain, in trying to optimize its local objectives, takes actions that end up hurting the performance of the entire supply chain. Lack of coordination also results if information distortion occurs within the supply chain.  Few some effects are discussed: Manufacturing costs: The producer plans its activity based on the stream of orders received from the immediate downstream stage (wholesalers/distributors/retailers). Due to the bullwhip effect, the production runs will witness a larger variability than that specific to the demand of the end-user. A manufacturer that is very responsive to the changes in the received orders does not enjoy economies of scale and the advantages of continuous production runs. The manufacturing costs increase due to either excess capacity or excess inventory. The lack of coordination increases manufacturing cost in the supply chain. As a result, of the bullwhip effect, P&G and its suppliers must satisfy a stream of orders that is much more variable than customer demand. Inventory and warehousing costs: The bullwhip effect increases the inventory and warehousing costs. In order to meet the variable demand expressed by the downstream levels, suppliers may build higher inventories. Consequently they will need additional storage space that will incur a raise in costs. The lack of coordination increases inventory cost in the supply chain. To handle the increased variability in demand, P&G has to carry a higher level of inventory than would be required if the supply chain were coordinated. Transportation costs: The variation in the demand expressed by the supply chain stages implies increased transportation costs. Suppliers must invest resources in additional transportation capacity to meet the unexpected demand peaks. Either owned by the organization or rented for a specific high-demand period, the extra capacity will entail costs. The lack of coordination increases transportation cost in the supply chain. The transportation requirements over time at P&G and its suppliers are correlated with the orders being filled. Labor costs for shipping and delivering: The shipment and reception of goods are also affected by the bullwhip effect. To handle additional volumes of goods, each stage of the supply chain bears higher costs. This situation is experienced by companies irrespective of the method of ensuring the necessary human resources, either maintaining excess labor capacity or hiring temporarily in response to the demand variations. The lack of coordination increases labor costs associated with shipping and receiving in the supply chain. Labor requirements for shipping at P&G and its suppliers fluctuate with orders. The supply chain stages have the option of carrying excess labor capacity or varying labor capacity in response to the fluctuation in orders. The Replenishment lead time: At the same time, the lead time is influenced by the bullwhip effect. A supplier needs time to adjust when it faces an unforeseeable upsurge in demand. To meet the requests of the distributors/wholesalers/retailers at the immediate downstream level, a manufacturer may need to start a new production run and eventually to place orders with suppliers of raw materials and components. A distributor will place additional orders with the current suppliers and/or contact new suppliers. Lack of coordination increases replenishment lead times in the supply chain. The increased variability as a result of the bullwhip effect makes scheduling at P&G and supplier plants must more difficult compared to a situation with level demand. There are times when the available capacity and inventory cannot supply the order coming in. Product availability: In the supply chains affected by the bullwhip effect, product availability is a critical issue. The unexpected variability of customer orders may lead to stockouts at the supplier level when demand is higher than the existing inventory. Thus, the members of the supply chain will loose sales and profits until they are able to respond to the end-buyer requests. Lack of coordination hurts the level of product availability and results in more stock outs in the supply chain. This increases the likelihood that retailers will run out of stock resulting in lost sales for the supply chain. Relationship across the supply chain: The bullwhip effect has a negative effect on performance at every stage and thus hurts the relationships between different stages of the supply chain. There is a tendency to assign blame to other stages of the supply chain because each stage feels it is doing the best it can. The bullwhip effect thus leads to a loss of trust between different stages of the supply chain and fnakes any potential coordination efforts more difficult. From the earlier discussion, it follows that the bullwhip effect and the resulting lack of coordination have a significant negative impact on the supply chain's performance. The bullwhip effect moves a supply chain away from the efficient frontier by increasing cost and decreasing responsiveness. So we can summarize the effects as follows: • Manufacturing cost (increases) • Inventory cost (increases) • Replenishment lead time (increases) • Transportation cost (increases) • Labor cost for shipping and receiving (increases) • Level of product availability (decreases) • Relationships across the supply chain (worsens) • Profitability (decreases) • The bullwhip effect reduces supply chain profitability by making it more expensive to provide a given level of product availability  OBSTACLES TO COORDINATION IN A SUPPLY CHAIN Any factor that leads to either local optimization by different stages of the supply chain, or an increase in information delay, distortion, and variability within the supply chain, is an obstacle to coordination. If managers in a supply chain are able to identify the key obstacles, they can then take suitable actions to help achieve coordination. We divide the major obstacles into five categories: • Incentive obstacles • Information-processing obstacles • Operational obstacles • Pricing obstacles • Behavioral obstacles INCENTIVE OBSTACLES Incentive obstacles occur in situations when incentives offered to different stages or participants in a supply chain lead to actions that increase variability and reduce total supply chain profits. LOCAL OPTIMIZATION WITHIN FUNCTIONS OR STAGES OF A SUPPLY CHAIN Incentives that focus only on the local impact of an action result in decisions that do not maximize total supply chain profits. For example, if the compensation of a transportation manager at a firm is linked to the average transportation cost per unit, the manager is likely to take actions that lower transportation costs even if they increase inventory costs or hurt customer service. It is natural for any participant in the supply chain to take actions that optimize performance measures along which they are evaluated. For example, managers at a retailer such as K-Mart make all their purchasing and inventory decisions to maximize K-Mart profits, not total supply chain profits. Buying decisions based on maximizing profits at a single stage of the supply chain lead to ordering policies that do not maximize supply chain profits. Sales Force Incentives Improperly structured sales force incentives are a significant obstacle to coordination in a supply chain. In many firms, sales force incentives are based on the amount the sales force sells during an evaluation period of a month or quarter. The sales typically measured by a manufacturer are the quantity sold to distributors or retailers (sell-in), not the quantity sold to final customers (sell-through). Measuring performance based on sell-in is often justified on the grounds that the manufacturer's sales force does not control sell-through A sales force incentive based on sell-in results in order variability being larger than customer demand variability. Potential Remedies Align incentives across functions. Alter sales force incentives from sell-in to sell-through. Pricing for coordination, e.g., Buy-back contracts Quantity-flexibility contracts Build strategic partnerships and trust. INFORMATION-PROCESSING OBSTACLES Information-processing obstacles occur in situations when demand information is distorted as it moves between different stages of the supply chain, leading to increased variability in orders within the supply chain. Forecasting Based on Orders and Not Customer Demand When stages within a supply chain make forecasts that are based on orders they receive, any variability in customer demand is magnified as orders move up the supply chain to manufacturers and suppliers. In supply chains that exhibit the bullwhip effect, the fundamental means of communication between different stages are the orders that are placed. Each stage views its primary role within the supply chain as one of filling orders placed by its downstream partner. Thus, each stage views its demand as the stream of orders received and produces a forecast based on this information. In such a scenario, a small change in customer demand becomes magnified as it moves up the supply chain in the form of customer orders. Lack of Information Sharing The lack of information sharing between stages of the supply chain magnifies the bullwhip effect. For example, a retailer such as Wal-Mart may increase the size of a particular order because of a planned promotion. If the manufacturer is not aware of the planned promotion, it may interpret the larger order as a permanent increase in demand and place orders with suppliers accordingly. The manufacturer and suppliers thus have a lot of inventory right after Wal-Mart finishes its promotion. Given the excess inventory, as future Wal-Mart orders return to normal, manufacturer orders will be smaller than before. The lack of information sharing between the retailer and manufacturer thus leads to a large fluctuation in manufacturer orders. Potential Remedies Sharing point of sale data. Collaborative forecasting and planning Single stage control of replenishment Continuous replenishment programs (CRP) Vendor managed inventory(VMI) Operational obstacles Operational obstacles occur when actions taken in the course of placing and filling orders lead to an increase in variability. Certain practices such as placing and filling orders may have adverse effects on coordination. For example, orders of larger sizes, larger replenishment lead times, rationing and shortages can all mean orders are unable to reflect true customer demand. *Ordering in Large Lots: When a firm places orders in lot sizes that are much larger than the lot sizes in which demand arises, variability of orders is magnified up in the supply chain. Firms may order in large lots because there is a significant fixed cost associated with placing, receiving or transporting an order and supplier offers quantity discounts based on lot size. The following shows a clear idea about the fact. It shows demand and the order stream for a firm that places an order every five weeks. Observe that the order stream is far more erratic than the demand stream. Because orders are batched and placed every five weeks, the order stream has four weeks without orders followed by a large order that equals five weeks of demand. A manufacturer supplying several retailers who batch their orders faces an order stream that is much more variable than the demand the retailers experience. If the manufacturer further batches its orders to suppliers, the effect is further magnified. In many instances there are certain focal-point periods, such as the first or the last week of a month, when a majority of the orders arrive. This concentration of orders further exacerbates the impact of batching. *Large Replenishment Lead times Consider a situation in which a retailer has misinterpreted a random increase in demand as a growth trend. If the retailer faces a lead time of two weeks, it will incorporate the anticipated growth over two weeks when placing the order. *Rationing and Shortage Gaming Rationing schemes that allocate limited production in proportion to the orders placed by retailers lead to a magnification of the bullwhip effect. This can occur when a high demand product is in short supply. One commonly used rationing scheme is to allocate the available supply of product based on orders placed. Under this rationing scheme, if the supply available is 75% of the total orders received, each retailer receives 75% of its orders. This rationing scheme results in a game in which retailers try to increase the size of their orders to increase the amount supplied to them. Potential Remedies There are some suggestions for reducing operational obstacles: Reduce replenishment lead times, by taking advantage of modern IT capabilities Computer-assisted ordering EDI Reduce lot sizes Computer-assisted ordering Shipping in LTL sizes by combining shipments Exploit technology and other methods to simplify receiving Ration based on past sales and information sharing to limit gaming Pricing obstacles Certain pricing practices and factors that affect pricing are also ways to detach orders from actual demand. For example, a company may overbuy if its supplier offers a discount on a larger lot of orders, or if its demand is exceptionally large, but members in the upstream supply chain can't rely on these sales figures to forecast future demand. *Lot-size based quantity discounts Lot size based quantity discounts Increase the lot size of orders placed within the supply chain and thus magnify the bullwhip effect. *Price fluctuations Trade promotions and other short-term discounts offered by a manufacturer result in forward buying, by which a wholesaler or retailer purchases large lots during the discounting period to cover demand during future periods. Forward buying results in large orders during the promotion period followed by very small orders after that. Forward buying results in large orders during the promotion period followed by very small orders after that as shown in for chicken noodle soup. Observe that the shipments during the peak period are higher than the sales during the peak period because of a promotion offered during this period. The peak shipment period is followed by a period of very low shipments from the manufacturer, indicating significant forward buying by distributors. The promotion thus results in variability in manufacturer shipments that is significantly higher than the variability in retailer sales. Potential Remedies Move from lot size-based to volume-based quantity discounts (consider total purchases over a specified period) Stabilize pricing Eliminate promotions (EDLP) Limit quantity purchased during a promotion Behavioral obstacles It is highly likely that members in the supply chain respond to local situations and neglect root causes. They may blame each other for fluctuations in local demand, resulting in loss of trust or even turning themselves into mutual enemies. Each stage of the supply chain views its actions locally, being unable to see the impact of its actions on other stages Different stages react to the current local situation rather than trying to identify the root causes Eventually, stages start blaming each other for the experienced problems, becoming enemies rather than partners Lack of trust results in opportunism, duplication of effort and lack of information sharing From a more pragmatic standpoint, it is generally hard to trace the consequences of certain actions because they will occur in some other stage(s) of the supply chain. Potential Remedies Proper distribution of work. Try to make teams not individuals Increase interaction among the coordinator ,worker, supplier and customer Managerial Levers to achieve coordination After identified obstacle to coordination, now we will discuss about the actions a manager can take to help overcome the obstacles and achieve coordination in the supply chain. Aligning of Goals and Incentives Managers can improve coordination within the supply chain by aligning goals and incentives so that every participant in supply chain activities works to maximize total supply chain profits. Aligning goals across the supply chain Coordination requires every stage of the supply chain surplus of the total size of the pie rather than just its individual share. In the absence of such approach, every supply chain leaves money on the table. Aligning incentivise across functions One key to coordinated decisions within a firm is to ensure that the objectives any function uses to evaluate a decision is aligned with the firm’s overall objective. All facility, transpiration and inventory decision should be evaluated based on their effect on profitability, not total cost or even worse, just local costs. This helps avoid situations such as a transportation cost but increase overall supply chain cost. Pricing for coordination A manufacturer can use lot size-based quantity discounts to achieve coordination for commodity products if the manufacturer has large fixed costs associated with each lot. For products for which a firm has market power, a manager can use two-part traffic and volume discounts to help achieve coordination. Given demand uncertainty, manufacturers can use buyback , revenue-sharing, and quantity flexibility contracts to spur retailers to provide levels of product availability that maximize total supply chain profits. Altering sales force incentives from sell-in to sell-through Any change that reduces the incentive for a salesperson to push product to the retailer reduces the bullwhip effect. Managers should link incentives for the sales staff to sell-through by the retailer rather than sell-in to the retailer. Improving information visibility and accuracy Managers can achieve coordination by improving the visibility and accuracy of information available to different stages in the supply chain. Sharing pint-to-sale data Sharing point-of-sale data across the supply chain can help reduce the bullwhip effect. A primary cause for information distortion is the fact that each stage of the supply chain uses orders to forecast future demand. Given that orders received by different stages very forecasts at different stages also vary. In reality, the only demand that the supply chain needs to satisfy is from the final customer. If retailers share POS data with other supply chain satges, all supply chain stages can forecast future demand based on customer demand. Sharing of POS data helps reduce information distortion because all stages now respond to the same change in customer demand. It is not necessary to share detailed POS data. Use of appropriate information systems facilitates the sharing of such data. Implementing collaborative forecasting and planning Once point of sale data are shared, different stages of the supply chain must forecast and plain jointly if complete coordination is to be achieved. Without collaborative planning, sharing of POS data does not guarantee coordination. Designing Single-Stage control of Replenishment Designing a supply chain in which a single controls replenishment decisions for the entire supply chain can help diminish information distortion. Improving replenishment lead time Reducing replenishment lead time By reducing the replenishment lead time, managers can decrease the uncertainty of demand during the lead time. A reduction in lead time is especially for seasonal items because it allows for multiple orders to be placed with significant increases in the accuracy of the interest. Reducing Lot sizes Managers can reduce information distortion by implementing operational improvements that reduce lot sizes. A reduction in lot sizes decreases the amount of fluctuation that can accumulate between any pair of stages of a supply chain, thus decreasing distortion. Designing Pricing Strategies to stabilize orders Managers can reduce information distortion by devising pricing strategies that encourage retailers to order in smaller lots and reduce forward buying. Moving from lot size based to volume-based quantity discounts As a result of lot size-based quantity discounts, retailers increase their lot size to take full advantage of the discount. Offering volume based discounts eliminates the incentive to increase the size of a single lot because volume based discounts consider the total purchase during a specified period rather than purchases in a single lot. Stabilizing price Managers can dampen the bullwhip effect by eliminating promotions and charging an everyday low price. The elimination of promotions removes forward buying by retailers and results in orders that match customer demand. Building strategic partnerships and trust Managers find it easier to use the levers discussed ealier to achieve coordination if trust and strategic partnerships are built within the supply chain. Sharing of accurate information that is trusted by every stage results in a better matching of supply and demand throughout the supply chain and lower cost. A better relationship also tends to lower the transaction cost between supply chain stages.  References 1.CHOPRA, S., MEINDL, P.: Supply Chain Management. Prentice-Hall, Englewood Cliffs, NJ, 2001. 2.CHEN, Y.F., DREZNER, Z., RYAN, J.K., SIMCHI-LEVI, D.: Quantifying the bullwhip effect in a simple supply chain: The impact of forecasting, lead times and information. Management Science 46, 2000. 3http://www.sciencedirect.com/science/article/pii/S0019850199001133 https://scholar.google.com/scholar?q=related:XlexuYgRhlYJ:scholar.google.com/&hl=en&as_sdt=0,5&as_vis=1 24