Slides 3 The Bullwhip Effect

1. Slides 3The Bullwhip Effect Global Supply Chain Management The Bullwhip Effect

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

3. Increasing variability of orders up the supply chain The Bullwhip Effect

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

5. The Bullwhip Effect

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 Effect

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

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 Effect

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 Effect

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 Effect

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 Effect

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? The Bullwhip Effect