The Bullwhip Effect
I find the article The Bullwhip Effect in Supply Chains interesting, realistic and educative. The writers explain the causes and solutions of the bullwhip effect in reference to companies like P&G indicating that the effect is real. The bullwhip effect is a default in the supply chain characterized by a counter effect of supply variability along the supply chain. It indicates that supply variability magnifies up the supply chain. This phenomenon can be linked to the reliance of manufacturers on supply data from re-sellers (Lee, Padmanabhan and Whang 94). In past years, manufacturers fell short of sale information at the distribution channel stage forcing them to rely on not so accurate information. It is interesting to learn that despite steady consumption rates, the demand order variability in the supply chain is amplified. It is also unexpected that the variability diversifies upper the supply chain. Based on research, I cannot deny that retail stores have fluctuations but not as exaggerated as they are higher the supply chain.
It is wretched to know that for years, manufacturers have relied on erroneous information to plan forecasts, capacity and scheduling productions. It is not until the bullwhip effect has revealed threatening consequences like increased correction costs, extreme capacity, poor forecast and poor consumer relations due to product unavailability, that the phenomena has been reacted upon with the seriousness it deserves(Lee, Padmanabhan and Whang 96 ). It is also fascinating to note that some causes of the bullwhip effect in the supply chain are a default of members the chain (Lee, Padmanabhan and Whang 95). A perfect example where the manufacturers kick start the effect is in demand forecast updating. Manufacturers have grown to believe the appropriate action to take every instance new information from the supply chain emerges, is to pass the fluctuation to orders (Lee, Padmanabhan and Whang 98). The decision is made without consideration of the period the information will affect the supply chain. This has resulted to order fluctuations being more than the prevailing demand data and consumer needs. Moreover, interesting to realize that periodic product excessive promotion is not the best thing
I agree with the writers’ argument and point of view. I approve that demand swings are highest at the top of the supply chain (Lee, Padmanabhan and Whang 93). The bullwhip effect cannot be ignored because it brings forth negative consequences to distributors. I concur that solutions to this issue must be addresses and to enable this, all interested parties must understand the causes of the bullwhip effects. It is true that the causes are a result of irrational decision making. It is also normality for companies to conduct periodic promotions in a bid to increase sales (Lee, Padmanabhan and Whang 96). Techniques like discounts and coupons result to price fluctuation. Consumers take advantage of periodic promotions and buy in bulk .Under such circumstance, supplier’s misread signals from the consumer buying patterns which reflect neither immediate need nor actual consumption rates. When the promotion period closes, the consumers stop buying until their stock finishes. The buying variations become more than the consumption variations leading to the bullwhip effect (Lee, Padmanabhan and Whang 95).
The writers’ argues that when demand exceeds supply, companies commence rationing. It is true to say that distributers will assume that the rationing will last for long therefore they exaggerate their orders. Some will even opt to multi-order so they are assured of sufficient supply. When they acquire the needed stock, they drop or cancel the other orders leading to the bullwhip effect. There is also a possibility that the effect is a result of accumulation of demand by distributors prior to making orders. This is usually done to reduce costs of transportation and when there are no enough consumers to warrant supply (Lee, Padmanabhan and Whang 99). As demand changes, variations in the supply chain intensify. I agree that amicable solutions to the bullwhip effect include conveying downstream demand upwards in time. Others are harmonizing forecast, pricing and transportation as well as inventory planning and regularly ordering demands (Lee, Padmanabhan and Whang 99). There is also need to improve performance by reducing expenses, being timely and up to date and reducing discounts.
Lee, Hau L; Padmanabhan, V; Whang, Seungjin. The Bullwhip Effect in Supply Chains. Sloan Management Review; Spring 1997; 38, 3; ProQuest pg. 93