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    Bull Whip Effect

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    Ankit Kumar
    The document discusses the bullwhip effect in supply chains. [1] The bullwhip effect is where demand variability increases at each stage of the supply chain such that the manufacturer sees much more variable orders than the original customer demand. [2] This is caused by a lack of information sharing and long lead times between stages. [3] The bullwhip effect can be reduced through measures like information sharing, reduced lead times, and coordinated planning between stages of the supply chain.

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    Bull Whip Effect

    Uploaded by

    Ankit Kumar
    35 views14 pages
    The document discusses the bullwhip effect in supply chains. [1] The bullwhip effect is where demand variability increases at each stage of the supply chain such that the manufacturer sees much more variable orders than the original customer demand. [2] This is caused by a lack of information sharing and long lead times between stages. [3] The bullwhip effect can be reduced through measures like information sharing, reduced lead times, and coordinated planning between stages of the supply chain.

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    BULL WHIP

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    The document discusses the bullwhip effect in supply chains. [1] The bullwhip effect is where demand variability increases at each stage of the supply chain such that the manufacturer sees much more variable orders than the original customer demand. [2] This is caused by a lack of information sharing and long lead times between stages. [3] The bullwhip effect can be reduced through measures like information sharing, reduced lead times, and coordinated planning between stages of the supply chain.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    35 views14 pages

    Bull Whip Effect

    Uploaded by

    Ankit Kumar
    The document discusses the bullwhip effect in supply chains. [1] The bullwhip effect is where demand variability increases at each stage of the supply chain such that the manufacturer sees much more variable orders than the original customer demand. [2] This is caused by a lack of information sharing and long lead times between stages. [3] The bullwhip effect can be reduced through measures like information sharing, reduced lead times, and coordinated planning between stages of the supply chain.

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    © All Rights Reserved
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    of 14

    Supply Chain Integration

    BULLWHIP Effect
    VALUE OF INFORMATION

    The Bullwhip Effect


    and its Impact on the Supply Chain
    • Consider the order pattern of a single color
    television model sold by a large electronics
    manufacturer to one of its accounts, a
    national retailer.

    Figure 1. Order
    Stream

    Huang at el. (1996), Working paper, Philips Lab

    1
    The Bullwhip Effect
    and its Impact on the Supply Chain

    Figure 2. Point-of-sales
    Data-Original

    Figure 3. POS Data After


    Removing Promotions

    The Bullwhip Effect


    and its Impact on the Supply Chain

    Figure 4. POS Data After Removing Promotion & Trend

    2
    Higher Variability in Orders Placed by Computer
    Retailer to Manufacturer Than Actual Sales

    Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

    Increasing Variability of Orders


    Up the Supply Chain

    Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

    3
    We Conclude ….

    • Order Variability is amplified up the


    supply chain; upstream echelons face
    higher variability.

    • What you see is not what they face.

    4
    The Bullwhip Effect

    No POS Data
    Little Information Sharing

    Poor
    Forecasting

    Min /Max
    Production Schedules
    Not Shared for Distribution
    Planning Little Information Sharing
    for Manufacturing Planning

    Manufacturing Distributor End User

    The longer the supply chain, the harder the whip cracks!

    5
    6
    7
    • Single retailer, single manufacturer.
    – Retailer observes customer demand, Dt.
    – Retailer orders qt from manufacturer.
    – Lead time =L.

    Dt qt
    Retailer Manufacturer
    L

    The Bullwhip Effect

    Var (Q ) 2 L 2 L2
    ≥1+ + 2
    Var ( D ) P P

    8
    Var(q)/Var(D):
    For Various Lead Times
    14
    L=5
    12

    10

    8 L=3

    4 L=1
    L=1
    2

    0
    0 5 10 15 20 25 30

    Consequences….
    • Increased safety stock
    • Reduced service level
    • Inefficient allocation of resources
    • Increased transportation costs

    9
    Multi-Stage Supply Chains
    Consider a multi-stage supply chain:
    – Stage i places order qi to stage i+1.
    – Li is lead time between stage i and
    i+1.
    qo=D q1
    Retailer Manufacturer q2 Supplier
    Stage 1 L1 Stage 2 Stage 3
    L2

    10
    Formula
    k k
    2(∑ Li ) 2(∑ Li ) 2
    Var(Q K )
    ≥ 1+ i =1
    + i =1

    Var ( D) p p2
    Var(Q K ) k −1  2 Li 2 Li 2 
    ≥ ∏ 1 + + 2 
    Var ( D) i =1  p p 

    11
    Multi-Stage
    Systems:Var(qk)/Var(D)

    30
    25 Dec, k=5

    20

    15
    Cen, k=5
    10 Dec, k=3
    Cen, k=3
    5
    k=1
    0
    0 5 10 15 20 25

    The Bullwhip Effect:


    Managerial Insights
    • Exists, in part, due to the retailer’s need to
    estimate the mean and variance of demand.
    • The increase in variability is an increasing
    function of the lead time.
    • The more complicated the demand models
    and the forecasting techniques, the greater
    the increase.
    • Centralized demand information can reduce
    the bullwhip effect, but will not eliminate it.

    12
    Coping with the Bullwhip Effect
    • Reduce Variability and Uncertainty
    - POS
    - Sharing Information
    - Year-round low pricing
    • Reduce Lead Times
    - EDI
    - Cross Docking
    • Alliance Arrangements
    – Vendor managed inventory
    – On-site vendor representatives

    Example:
    Quick Response at Benetton

    • Benetton, the Italian sportswear manufacturer, was


    founded in 1964. In 1975 Benetton had 200 stores
    across Italy.

    • Ten years later, the company expanded to the U.S.,


    Japan and Eastern Europe. Sales in 1991 reached 2
    trillion.
    • Many attribute Benetton’s success to successful use
    of communication and information technologies.

    13
    Example:
    Quick Response at Benetton
    • Benetton uses an effective strategy, referred to
    as Quick Response, in which manufacturing,
    warehousing, sales and retailers are linked
    together. In this strategy a Benetton retailer
    reorders a product through a direct link with
    Benetton’s mainframe computer in Italy.
    • Using this strategy, Benetton is capable of
    shipping a new order in only four weeks, several
    week earlier than most of its competitors.

    How Does Benetton


    Cope with the Bullwhip Effect?
    1. Integrated Information Systems
    • Global EDI network that links agents with
    production
    and inventory information
    • EDI order transmission to HQ
    • EDI linkage with air carriers
    • Data linked to manufacturing
    2. Coordinated Planning
    • Frequent review allows fast reaction
    • Integrated distribution strategy

    14

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