BULLWHIP EFFECT TERRY CHIN

What is bullwhip effect? Occurs when companies significantly cut or add inventories. Small increase in demand can easily cause a big snap

Causes Customer demand is hard to predict, relatively unstable Demand forecast is always inaccurate, based on statistics!

Causes Poorly maintained and unmanaged Supply Chain Lack of communication Lack of coordination

Causes Orders batching Shortage gaming

As a result! When demand rises, participants will increase their orders When demand falls, orders fall or stop

Countermeasures Providing access to point of sale (POS) data. Vendor Managed Inventory (VMI)

Countermeasures Smaller but more frequent orders Make use of Electronic Data Interchange (EDI) and Computer Aided Ordering (CAO)

Countermeasures Reduce minimum batch sizes Allocate units based on past sales instead of current sales

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