The Bullwhip Effect1 Slides 3 The Bullwhip Effect Global Supply Chain Management

The Bullwhip EffectSlide 2 Higher variability in orders placed by computer retailer to wholesaler than in actual sales

The Bullwhip EffectSlide 3 Increasing variability of orders up the supply chain

The Bullwhip EffectSlide 4 Fluctuations of Inventory and Backorders throughout the Supply Chain (Bullwhip)

The Bullwhip EffectSlide 5

The Bullwhip EffectSlide 6 Conclusion ….  Order variability is amplified up the supply chain - upstream entities face higher variability  What you see is not what they (can) see

The Bullwhip EffectSlide 7 What are the Causes ….  Inaccurate demand forecasts  Long cycle times  Volume and transportation discounts  Promotional sales  Changes in prices  Inflated orders

The Bullwhip EffectSlide 8 Consequences ….  Increased inventory levels (higher costs)  Inefficient allocation of resources (people, trucks, warehouses - higher costs)  Reduced service levels: demand cannot be fulfilled (lower revenues)  Products unsold or sold at discount (lower revenues)

The Bullwhip EffectSlide 9 Fixing the Bullwhip Effect (1)  Actions related to “ inaccurate demand forecasts ” – Forecast demand using adequate info and forecasting techniques – Plan promotions well and communicate them through chain – Use every-day-low-(stable) - prices strategy – Avoid panic ordering

The Bullwhip EffectSlide 10 Fixing the Bullwhip Effect (2)  Actions related to “ long cycle times ” – Reduce information lead times by centralizing demand information – Integrate truly with a vendor managed inventory approach – Reduce production lead times (supplies, manufacturing, assembly) – Reduce delivery lead times (from supplier to manufacturer/assembler through distributor, wholesaler, retailers to customer)

The Bullwhip EffectSlide 11 Case: Malt Beverage Game  You are a Malt Beverage retailer and are ordering from a manufacturer (see case)  Play the corresponding Beergame – try to satisfy demand from your customers  In the meantime – try to keep stock at a ‘safety level’ of 12  What is the key problem ?

The Bullwhip EffectSlide 12 Case: Order Model  You see a single player in the supply chain, run the corresponding order model  You see two players in the supply chain, run the corresponding order model  What is are the key problems?  How can adequate ordering be achieved?  Or: what would be an adequate strategy?