...Measuring the Bullwhip Effect Termpaper for International Logistics WS14/15 Lecturer: Christian Deckert Johannes Wolff BA13, International Business , International Trade 1132214046 Table of Contents List of Figures ii 1. Introduction 1 2. The Bullwhip Effect as a Supply Chain Phenomenon 1 2.1. Managing the Supply Chain 1 2.2. The Bullwhip Effect as Supply Chain Dynamics 2 2.3. The Bullwhip Effect as an Inevitable Consequence of Supply Relations—The Beer Game 3 2.4. The Reasons for the Bullwhip Effect 3 2.5. Studying the Bullwhip Effect in Data 5 3. Formal Analysis of the Bullwhip Effect 7 3.1. Models Based on Serially Correlated Demand 7 3.2. Measuring the Effect of Transparency 8 4. Mitigating the Bullwhip Effect 8 4.1. Information Policy 8 4.2. Reducing Lead Time 8 4.3. Collaboration of Retailers 9 5. Summary 9 References 10 Appendix 12 List of Figures Figure 1: Order fluctuations in the beer supply chain 12 1. Introduction The US-American telecommunications company CISCO depreciated 2.25 million US dollars in the third quarter of 2001 due to excess stock (Beer, 2014, p. 1). According to Beer (2014, p. 3.) the bullwhip effect is the probably most important reason for this depreciation. The bullwhip effect affects production and leads to a shortage of stocks or excess stocks, drops in sales, increases inventory costs and instability of planning (Beer, 2014, p. 3). Productivity losses due to the bullwhip effect are between...
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...REVIEW OF SUPPLY CHAIN MANAGEMENT CONCEPTS AND THE BULLWHIP EFFECT H.M. Lai1 1Faculty of Engineering, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia. ahiu_mun@hotmail.com Keywords: Supply Chain Management, Bullwhip Effect, Inventory. Abstract. In recent years, the application of supply chain management in organization has become very popular. Business organizations today increasingly use the vital role of supply chain management to compete. This paper presents the basic concepts and literature review of supply chain management. The practice of supply chain management is guided by some basic underlying concepts that have not changed much over the centuries. This paper also discusses the common problem in supply chain management known as the bullwhip effect. 1. Introduction At present, the way the business is done has undergone radical transformation due to ever increasing expectations of consumers. The realization of importance of collaboration and integration among the partners has led to the idea of supply chain management. Organizations have realized the essentialness of an effective and efficient management of supply chain for present and future survival. Hence, the importance of supply chain management has grown over a period of time and plenty of planning models are now practiced by organizations across the globe. In adopting supply chain management, organizations must carry out a consistent set of management practices. 2. The Concept of Supply Chain Management...
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...analysis of Supply Chain Collaboration Techniques By Arun Table of Contents Introduction 3 Supply chain Management and Drivers of supply chain performance 3 Retail Industry supply chain overview 4 Bullwhip Effect 5 Reducing the “Bullwhip Effect” 6 Mitigating Bullwhip Effect by Improving Information Accuracy 7 Collaborative planning, forecasting and replenishment (CPFR) 8 Drawbacks of CPFR 9 Vendor Managed Inventory (VMI) 9 Drawbacks of VMI 10 Mitigating Bullwhip Effect by Improving Operational Performance 10 Vendor consolidation 11 Risk in using 3PL for vendor consolidation 13 Reducing Replenishment Lead time using Cross docking 14 Supplier selection for cross-docking 15 Benefits of Cross-docking 16 Disadvantages of Cross-docking 17 Conclusion 18 Appendix 19 Appendix A 19 Products suitable for cross-docking 19 Types of cross-docking 19 References 21 Introduction A Supply chain consists of all the participants and processes which are involved in satisfying the customer demand. The large amount of participants, variety of processes, dynamics and uncertainty in materials and information flow prove that the supply chain as a complex system in which coordination is considered as a key element for success. The lack of supply chain coordination between the participants results in a “Bullwhip Effect”. This report analyzes different techniques followed by Wal-Mart to improve coordination for reducing the bullwhip effect. Wal-Mart’s...
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...6290 Quality in Supply Chain Design DISTRIBUTED COORDINATION IN SUPPLY CHAIN MANAGEMENT CONCORDIA UNIVERSITY November 5, 2013 Montreal, Canada 1. INTRODUCTION A supply chain refers to the production and distribution process from raw materials to finished goods. Members of the supply chain are dependent on each other to reduce overall cost and maximize their profit. This dependency, resulting in risk and uncertainty along with benefit, has recently been increasing due to the rapid innovation of information technology, globalization, and outsourcing. A need for coordination mechanism arises from interdependencies between the activities of supply chain members and this need differs depending on sources of complexity and uncertainty. Supply chain coordination is ``a term encompassing cooperation (joining operation), collaboration (working jointly), and integration (combining into an integral whole). It also involves information system alignment (jointly expanding the information structure beyond the boundaries of each supply-chain member). These elements constitute coordination mechanisms to manage independencies among supply chain members`` (Botta-Genoulaz 2010). Below is the conception model of supply chain coordination (Arshinder 2011). [pic] A literature review is presented in this paper to highlight the importance of supply chain coordination. The objective of...
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...1. Supply Chain Management The objective of supply chain management is to provide a high velocity flow of high quality, relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to customers. In other worlds it would be responsible to put the right product and quantity, at the right place and at the right time. The logistic performance has a strong influence over the financial performance of the industrial companies and commercial. With the development, together with development of the information technology, among other factors, show up the possibility of supply chain managed, which is know as Supply Chain Management. It is very important to understand first the objectives of the Supply Chain Management therefore give a close up at the Bullwhip Effect and understand its causes and understand how to minimize it. 2. Bullwhip Effect Supply Chain coordination functions well as long as all stages of the chain take actions that together increase total supply chain profits. Each part of the chain should maintain its actions in a good relation to other participants and the supply chain in general and make decisions beneficial to the whole chain. If the coordination is weak or does not exist at all, a conflict of objectives appears among different participants, who try to maximize personal profits. Besides, all the relevant information for some reason can be unreachable to chain participants, or the information can get...
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...Interpersonal Communication in the Supply Chain Rick London Muhlenberg College Communications Nancy Miller July 15, 2015 Abstract Effective communication is an essential part of any interaction between two or more parties. For tasks to be completed, a message must be sent so that it can be understood and acted upon by all the parties involved. In business, parties to a transaction may or may not personally know each other and oft times they may not be on the same continent or speak the same language. This paper examines several case studies to determine if the personal relationships and interpersonal communications between parties in supply chain management has a positive effect on the transaction. Interpersonal Communication in the Supply Chain Introduction Supply Chain Management (SCM) emerged as an employment field in the nineteen nineties; before that time, the study of communication in business practices has occurred since at least 1958 (Gligor & Autry, 2012, p. 24). This paper explores the necessity for effective interpersonal communication in the supply chain in the present. Communication is defined as the act or process of using words, sounds, signs, or behaviors to express or exchange information ("Definition of Communication," 2015, para.1). We are all familiar with communication in our daily lives and the importance it holds in conveying or receiving a message, but, when the operation of a business, or a supply chain in this instance, relies upon...
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...Homework #4 Supply Chain Selina Engel, CM 3323 Discussion Questions Chapter 10 1. What is the bullwhip effect and how does it relate to lack of coordination in a supply chain? The bullwhip effect is a phenomenon that fluctuation in orders increases as one moves up the supply chain from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect relates directly to the lack of coordination (demand information flows) within the supply chain. Each supply chain member has a different idea of what demand is, and the demand estimates are distorted and exaggerated as the supply chain partner is distanced from the customer. 2. What is the impact of lack of coordination on the performance of a supply chain? The impact of lack of coordination is degradation of responsiveness and poor...
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...The Bullwhip Effect Market demand helps determine at what level to set production output for one particular good. When consumers demand more of a certain product, the retailers in turn will demand more of it from the wholesalers, which in turn causes an increase in demand from manufacturers as well. The market may have moved a little bit, but as the demand information travels up the supply chain, the upstream supplier may be seeing a much bigger swing. The lack of supply chain coordination leads to a phenomenon known as bullwhip effect (BWE), in which fluctuation increases as we move up the supply chain from the retailers to wholesalers to manufacturers to suppliers. The bullwhip effect distorts demand information within the supply chain, with each stage having a different estimate of what demand looks like (Sangwan & Sharma 2015:387). With distortions happening in bigger magnitude a negative impact on business performance will take place such as inventory disruption, quality control problems, cost of transportation, diminished customer service and increase cost of material and manpower. There are numerous factors which contribute to the bullwhip effect. Four major causes we could mention are price fluctuations and sales promotions, order batching, shortage gaming and forecast inaccuracies. Sales promotion and price discount result in customers buying in large quantities and stocking up and as a result the buying pattern doesn’t reflect the actual consumption. With...
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...problems associated with uncoordinated decision-making? Based on the results you found in the previous part, list the potential benefits of coordination. (max 0.75 page) 2. What are the steps companies can take in order to reduce the problems associated with uncoordinated decision-making? Discuss also the potential implementation issues related to each of these steps. (max 0.75 page) 1. The inventory and backorders increased for every participant in the supply chain except for the backorder of the retailer in coordinated modes. The retailer had an average backorder of 22.31 throughout the uncoordinated mode and 22 in the coordinated mode. The underlying reason for the problem associated with uncoordinated decision-making is essentially the lack of communication between different participants and the demand uncertainty that existed throughout the game. Moreover, misperception of feedback and time delays within the uncoordinated mode, caused the limited quality in decision making. Furthermore, one may identify perceived risk of individual players' bounded rationality as one of the underlying reasons that had impact on the buildup of backorders. In addition to this, a prevalent issue throughout the first 18 weeks was panic ordering reactions after unmet demand, which consequently contributed to the high inventory cost, ergo the bullwhip effect. First...
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...What is Supply Chain Management (SCM)? • Boundary Spanning Nature of SCM Introduction to Supply Chain Management • The Rise of SCM • Characteristics of a Competitive Supply Chain • Trends in SCM • Careers in SCM and Professional Organizations • Review Copyright 2011 John Wiley & Sons, Inc. 1-1 Copyright 2011 John Wiley & Sons, Inc. 1-2 What is Supply Chain Management? Supply Chain Management (SCM) is the design and management of flows of products, information, and funds throughout the supply chain Supply Chain Stages A typical supply chain may involve many different trading partners, called stages Stages may include: – Suppliers – Producers – Wholesalers/Distributors – Retailers – Customers Copyright 2011 John Wiley & Sons, Inc. 1-3 Copyright 2011 John Wiley & Sons, Inc. 1-4 SCM Activities SCM activities include: • Coordination – coordinate the movement of goods, services, and funds through the supply chain Managing Flows Through the Supply Chain Managing Flows of Products, Information, and Funds: • Flow of Products – from the beginning to the final customer – Reverse Logistics • Information Sharing – share forecasts, point-of-sale data, planned promotional campaigns, and inventory levels • Collaboration – jointly plan, operate, and execute business decisions as one entity Copyright 2011 John Wiley & Sons, Inc. 1-5 Copyright 2011 John Wiley & Sons, Inc. 1-6 1 10/15/2012 Managing Flows Through the Supply Chain...
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...Part I. Bullwhip Effect 1. Explain what the Bullwhip Effect is. (5points) Turban(2004) defined “bullwhip effect” as large fluctuation in inventories along uncoordinated supply chain that result from small fluctuation in the demand for finished goods. Actually this concept is saying, the whole industry supply chain is likened to a whip, and the customer is holding the end of whip. As customer consumption behavior changing, the whole whip will shake, which leads the whip swing. The whole industry chain has become very unstable. The wave (fluctuation) becomes larger and larger from the end customers, retailer, Wholesalers to Manufacturers. 2. Explain why Volvo manufacturing department believed that consumers had started to like green cars in the mid-1990s. (5points) Since the manufacturing department does not know that sales and marketing offered attractive special deals to customers. It only noticed the sales rose, which shows as a sign that customer change behavior because they like this product. In fact, they bought it since it is a good deal. Lack of communication between each group would lead to bullwhip effect. 3. (1) Discuss how the Bullwhip Effect can be reduced in general and (2) how IT (Information Technology) can be used to reduce the Bullwhip Effect. (10points) • Improve communication along the supply chain by some tools, e.g., Point-of-sale data collection, electronic data interchange, and vendor-managed...
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...in a supply chain for the supplier‘s performance Bachelor thesis: Organization studies, 2nd semester, academic year 2011-2012 Thesis Circle: Time will tell…. A processes perspective on inter-organizational collaboration Name: PC Jansen ANR: 770926 E-mail: P.C.Jansen@uvt.nl The importance of information sharing in a supply chain for the supplier‘s performance Abstract This literature review investigates the effect of information sharing from a buyer to a supplier in a supply chain on the performance of that supplier, with taking in mind that the supplier has to combat the bullwhip effect. With the existence of the bullwhip effect, a supplier cannot make right forecasts and therefore has difficulties in planning its production and/or inventory control. This research shows that information sharing is the key solution to reduce or avoid the bullwhip effect and, by that, it positively influences the performance of the supplier in the chain. Keywords: Bullwhip, supply chain, information sharing, supplier performance, inventory control, single-echelon, multi-echelon Thesis Circle: Time will tell…. A processes perspective on inter-organizational collaboration Supervisor: Remco Mannak Supervisor 2: Annemieke Stoppelenburg Name: PC Jansen ANR: 770926 E-mail: P.C.Jansen@uvt.nl 2 Table of contents Table of contents 3 1. Introduction 4 2. Theoretical Framework 7 2.1 Bullwhip effect 7 ...
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...7-May-2013 1) Bullwhip effect defines as; It is a tendency of customer of material or product in short supply to buy more than they need in an immediate future (Bullwhip effect, 2010). There are several factors involved to cause bullwhip effect; overreaction to backlogs, neglecting to order in an attempt to reduce inventory, communication gap in supply chain, in-accurate demand forecasting etc. In order to deal with bullwhip effect, there are certain countermeasures to overcome the effect; proportional rationing schemes that encountered by assigning unit based on past sales. Vendor Managed Inventory (VMI) can overcome exaggerated demand forecast. Special purchase contracts that can be implemented in order to specify ordering at regular intervals to better synchronize delivery and purchase (Bullwhip effect, 2010). 2) The sales department of Volvo offered special deals which caused the increase in demand of green cars. The manufacturing department was not aware of the promotion and believed that consumers had started to like green cars (Michael Bean, 2006) 3) The bullwhip effect can be reduced by keeping prices low and keeping demand steady. This reduces periodic high inventory levels and the need to discount products (Ivey, 2011). VMI (vendor-managed inventory) is a model in which an accord is reached between the customer and the retailer based on customer demand. The customer to an extent decides the prices of the products in this model. Large amount of inventory...
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...“The bullwhip effect in supply chain: Reflections after a decade” . CELS 2008, Jönköping, Sweeden. (presented by EmreEryılmaz). Note: This is the final draft version of this paper. Please cite this paper (or this final draft) as above. You can download this final draft from http://research.sabanciuniv.edu. THE BULLWHIP EFFECT IN SUPPLY CHAIN Reflections after a Decade Gürdal Ertek, Emre Eryılmaz Sabancı University, Orhanlı, Tuzla, 34956, Turkey Abstract A decade has passed since the publication of the two seminal papers by Lee, Padmanabhan and Whang (1997) that describes the “bullwhip effect” in supply chains and characterizes its underlying causes. The bullwhip phenomenon is observed in supply chains where the decisions at the subsequent stages of the supply chain are made greedily based on local information, rather than through coordination based on global information on the state of the whole chain. The first consequence of this information distortion is higher variance in purchasing 1 quantities compared to sales quantities at a particular supply chain stage. The second consequence is increasingly higher variance in order quantities and inventory levels in the upstream stages compared to their downstream stages (buyers). In this paper, we survey a decade of literature on the bullwhip effect and present the key insights reported by researchers and practitioners. We also present our reflections and share our vision of possible future. Keywords: Bullwhip Effect...
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...Chapter 12 Question 11: briefly describe MRP II and closed-loop MRP. MRP II did not replace or improve MRP. Rather, it expanded the scope of materials planning to include capacity requirements planning, and to involve other functional areas of the organization such as marketing and finance in the planning process. Production, marketing, and finance personnel work toward developing a master production schedule. Although manufacturing people will have a major input in determining that schedule and a major responsibility for making it work, marketing and finance will also have important inputs and responsibilities. The rationale for having these functional areas work together is the increased likelihood of developing a plan that works and with which everyone can live. Moreover, because each of these functional areas has been involved in formulating the plan, they will have reasonably good knowledge of the plan and more reason to work toward achieving it Closed loop MRP: When MRP was introduced, it did not have the capability to assess the feasibility of a proposed plan (i.e., if sufficient capacity existed at every level to achieve the plan). Thus, there was no way of knowing before executing a proposed plan if it could be achieved, or after executing the plan if it had been achieved. Consequently, a new plan had to be developed each week. When MRP II systems began to include feedback loops, they were referred to as closed-loop MRP. Closed-loop MRP systems evaluate a proposed...
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