Managing the volatility of demand is known to be one of the biggest challenges faced by supply chain managers. According to Gerard Cachon, Taylor Randall, and Glen Schmidt, the bullwhip effect is when “the variance of the flow of material to the industry (what macroeconomists often refer to as the variance of an industry’s “production”) is greater than the variance of the industry’s sales” (457). Chen, Drezner, Ryan and Simchi-Levi state that, …the increased variability in the order process (i) requires each facility to increase the safety stock in order to maintain a given service level, (ii) leads to increased costs due to overstocking throughout the system, and (iii) can lead to an inefficient use of resources, such as labor and transportation… …show more content…
Cachon, Randall, and Schmidt gave various examples, including Proctor and Gamble, which is a very large, established firm that many would assume have complete control of demand forecasting; Proctor and Gamble experienced the bullwhip effect through high demand volatility despite having a relatively constant consumer demand for its products (457). The bullwhip effect can be attributed to a number of causes, divided among two major categories: behavior causes and operational causes (Bhattacharya and Bandyopadhyay 1245). Studies on the causes of the bullwhip effect have shown at least 19 causes, which includes both the operational and behavioral effects: demand forecasting, ordering policy and batching, price fluctuation, rationing and shortage gaming, lead time, inventory policy, replenishment policies, an improper control system, lack of transparency, neglecting time delays, lack of learning/training, fear of empty stock, capacity limits, company processes, local optimization without global vision, misperception of feedback, lack of synchronization, and the multiplier effect (Bhattacharya and Bandyopadhyay
AWG is faced with logistical challenges similar to others in the industry. The largest logistical challenge on a daily basis at AWG is their finite timeline between restocking and outgoing shipments to retailers. Any deviation from the schedule due to an extenuating circumstance (labor strike, weather event, ...
Bull riders face a tremendous risk of injury with each ride on a two-thousand pound bull. There are many different body mechanics involved in the sport of bull riding. Injuries caused by bull riding can be very serious and even life-threatening at times. Protective gear is available for bull riders, if they choose to use it. With this being said, does protective gear help prevent bull riding injuries?
In addition, on day 105, the reorder quantity was 13,200. This approach was effective as it increased the number of inventory kits available for production. In total, the company used $2,059,000 to increase its inventory levels. The increased inventory levels and the readjustments of reorder points enabled the factory to increase the number of jobs accepted each day as well as to reduce the number of jobs waiting for kits. In addition, there was a high number of kits queued at station one from day 80 which was accompanied by increased utilization of station one. Besides, we were able to reduce the lead time for all the orders and this enabled the company to increase its revenues.
WISNER, J.D., TAN, K. and LEONG, G.K., 2009. Principles of supply chain management : a balanced approach / Joel D. Wisner, Keah-Choon Tan, G. Keong Leong. Mason, OH : South-Western Cengage Learning, 2009; 2nd ed. pp 111-113,262
In addition, we divided our forecasted sales into retail and consumer. Our average demands per month for each quarter for retail sales are 22,082, 24,583, 26,432, and 27,846. For direct to consumer sales, our averages per month for each quarter came out to 1,790, 1,993, 2,143, and 2,258. After determining the average demand per month for each quarter, we used this data to calculate how much safety stock we need to keep per month for each different quarter as well. Safety stock is inventory that is kept to prevent a stock out due to uncertainty. For our product, Cosmic Brownies, we came to the conclusion that a service level of 95% would be sufficient for our retail customers, while a 90% service level was appropriate for direct to consumer. Since our retail sales make up about 92.5% of our total sales, we determined that it was important to have a higher service level for this portion of our
(Punter, 2013, p11) categorises the effect supply chain failures caused by disruption and their frequency of occurrence. This is critical to supply chain managers because realisation of effects can help prevent future occurrences.
Matching supply and demand is achieved at 3 levels. First, operations strategy is concerned with defining demand in terms of broad operations performance objectives related to aspects of stakeholder value, and with deciding on the general ways in which the operation will satisfy those demands (i.e. customization…). Second, operations design is concerned with a detailed specification of the products, processes, and staff needed to fulfil the strategy. Third, operations planning and control is concerned with the day-to-day operation of the process, adjusting to daily or weekly fluctuations in demand, or difficulties with supply. There should be a match between supply and demand in the following 3 areas: volume – the amount of the product that needs to be delivered. timing – when this product is available. quality – the specification and performance of the product in relation to customer expectations" (Bettley & Tantoush, 2007, pp.135-136). The Supply Chain Planning and Control business area enables you to manage your supply and demand planning, and control the material flow. Supply chain management is the main control and planned for all the products required of the market because they are in direct contact with customers, so the success of the companies and maintain customer satisfaction relied upon heavily. "The fundamental problem that faces many companies (not just those in fashion industries) is that the time it takes to source materials, convert them into products and move them into the market place is invariably longer than the time the customer is prepared to wait. This difference between what might be called the "logistics pipeline" and the customers' order cycle time is termed the "lead-time-gap". Conventionally, this gap was filled with a forecast-based inventory-there was no other way of attempting to ensure that there would be product available as and when customers
The Beer Game simulates the flow of supply chain management that occurs in the real world. While playing the practice round Beer Game and the two rounds with a group, the “bullwhip effect” was a clear malfunction in our supply chain. As backlog started to accumulate and an exponential amount of inventory began to pile up, it was evident we were affected by the bullwhip effect. The bullwhip effect is describes to be the increasing variation of demand going upstream the supply chain from consumers to suppliers. Coordination between the manufactures, wholesaler, distributor and retailer was key to playing a successful round. However, by not communicating with one another and not understanding the demand that exists, increase of costs and backlogs begin to spiral out of control. Each player controls their particular section in the supply chain, though, each player can influence the supply chain as a whole by not ordering enough or perhaps ordering too much. It was obvious that the decisions made by each player was impacting the performance of the other in the chain. We found that the longer the lead time, the larger the variation. This extended lead time impacts the manufacture to worry, and then causes them to increase their production in order to meet their forecasting predictions. Their forecasting predictions are then a result of assumptions that never really existed in the first place. As playing the role of the Retailer, I was unable to meet the consistent demands of consumers. The bullwhip effect was noticed as my level of inventory increased to over 111, and shooting up my costs to over $2,400. Thus, it was clear and obvious that every division in the supply chain plays a key role. It ultimately became a domino effect w...
Given all kinds of possible reasons leading to “Bullwhip effect” the major question that stays is that why do we need any kind of cure to this problem. The possible answer to this question is that this effect has its own underlying cost, that can be associated with setting up and shutting down machines, hiring and firing of the workforce, excessive upstream machinery.
Reducing risk ; reducing the quantity of manufactured so that reducing burden of stock and burden of frequent discount sales
Just like anything in life, there are going to be certain peaks and valleys to worry about. There is one concept however that tries to make sense of this madness. According to finance.zack.com It is called risk pooling. Risk pooling is mainly used in the insurance industry to try and lower risk for things like earthquakes, fires and hurricanes. This technique will diversify risk between several companies through pooling agreements. In the world of supply chain, this theory suggests that when demand is lower in a certain area, there is probably a different area that is experiencing high demand. Because of this, you don’t have to keep as much safety stock. If high demand and low demand with cancel each other out, than less inventory will be
Lee, H. (2010). Don’t tweak your supply chain: Rethink it end to end. Harvard Business Review, 88(10), 62-69.
for periods ahead and decision makers should decide upon when and how much to order and/or produce for each entity to provide their customers with a proper service level. In an uncertain environment, replenishment planning will be more complex where there is not sufficient information about the parameters related to other chain’s entities. Sometimes, these entities become involved in different kinds of contracts to coordinate with each other. It reduces risk in a stochastic situ...
In addition, at the time, the economy was doing great, therefore, using the push system to stock pile inventory was acceptable. However, during the dot-com bust of the 2000’s, its sales and the demand for its products greatly decreased. Unfortunately, during this time, Cisco discovered that it possessed an abundance of inventory, and, wrote off more than $1 billion in inventory. Consequently, the company learned that acquiring inventory in anticipation of market demand, and not factoring in the human element of its business increased its risks of failure. Obviously, Cisco wanted to meet its customer’s demands, however, the problem was that it held more inventory than what the customers were demanding. Nevertheless, afterwards, it knew that it needed to adopt a new, more efficient approach to inventory. Therefore, Cisco had to reevaluate its supply chain system and seek input from IT, customers, suppliers, and finance. Further, by including input from these sources, Cisco adopted the more efficient pull system. The pull system, is dependent upon producing smaller repeating orders. Rather than the push system, which relies on larger less repeating orders. Effective inventory management, when administered correctly, can reduce and keep the inventory to a more desired level. In addition, Cisco discovered that inventory management can reduce inventory levels, enhance cash flow and reduce overall
19. Sodhi, Sunil Chopra and ManMohan S. Managing Risk to Avoid Supply Chain Breakdown. MITSloan Management Review. [Online] October 15, 2004. [Cited: February 25, 2010.] http://sloanreview.mit.edu/the-magazine/articles/2004/fall/46109/managing-risk-to-avoid-supplychain-breakdown/.