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Bullwhip Effect

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9/27/2010
I. Product Availability
The Bullwhip Effect does impact the supply chain performance measure of product availability, when the demand is overestimated due to BWE, there is an increase on the PA. When the demand is underestimated due to BWE, there is a decrease on the PA. Amplification (demand inflation) can increase service level at least on a temporary basis because there will be more supply produced to keep up with demand. Oscillation (demand variability) would usually lead to stock outs and hence reduced PA. Product availability can be measured by service level, and stock outs would lead to a decrease in PA and a decrease in customer satisfaction.
Forecasting demand becomes increasingly difficult as the bullwhip effect is incurred, creating variability in the true demand downstream. This will impact the product availability because without understanding the true demand actual demand forecasts may be inflated or under forecasted depending on the nature of the bullwhip effect. This can also be seen when product rationing is in effect, the customers might inflate their order quantities to get a larger ration of product and thereby inflating demand even further. The sudden surge of orders during times of product rationing would create unrealistic demand projections. As the gap between the actual demand of product vs supply decreases the ‘phantom’ orders would start to disappear and the manufacturer is left with an overstock of inventory.

II. Sharing Sales, capacity, and inventory data

An impediment to this initiative could be the restrictions in a company’s financial budget to overcome the necessary investments to implement the sharing of this information. There are financial implications to maintain and generally a separate team of resources is needed to maintain and ‘cleanse’ data of errors and inaccuracies. Not all companies have the

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