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By
Dr. Debadyuti Das
Bullwhip Effect
Fluctuations in orders increase as they
move up the supply chain from retailers to
wholesalers to manufacturers to suppliers
Distorts demand information within the
supply chain, where different stages have
very different estimates of what demand
looks like
Results in a loss of supply chain
coordination
Examples: Proctor & Gamble (Pampers); HP
(printers); Barilla (pasta)
We Conclude .
Order variability is amplified up
the supply chain; upstream
echelons face higher variability.
What you see is not what they
face.
Promotional sales
Forward buying
Inflated orders
IBM Aptiva orders increased by 2-3 times
when retailers thought that IBM would
be out of stock over Christmas
Motorola cell phones
Dt
Retailer
qt
L
Manufacturer
Var (q )
2L 2L
1
2
Var ( D)
P P
Var(q)/Var(D):
For Various Lead Times
14
L=5
12
10
L=3
8
6
L=1
L=1
4
2
0
0
10
15
20
25
30
Consequences.
Increased safety stock
Reduced service level
Inefficient allocation of
resources
Increased transportation costs
qo=D
Retailer
Stage 1
q1
L1
Manufacturer q2
Stage 2
L2
Supplier
Stage 3
Multi-Stage Systems:
Var(qk)/Var(D)
30
25
Dec, k=5
20
15
10
Cen, k=5
Dec, k=3
Cen, k=3
k=1
0
0
10
15
20
25
Information is needed :
Lead-Time Reduction
Why?
How?
EDI
POS data leading to anticipating
incoming orders.
Inventory -- Transportation:
Lead time reduction for batching
Information systems for combining
shipments
Cross docking
Advanced DSS