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Bullwhip effect ppt
- 1. THE BULL WHIP EFFECT IN SUPPLY CHAINS Presentation By;- Pulak pattanaik
- 2. What is Bullwhip !! Bullwhip effect is a phenomenon in forecast driven distribution channels detected by supply chain. In bullwhip effect order sent to the manufacturer and supplier create larger variance then the sales to the end customers.
- 3. Effects Of Bullwhip In a supply chain plagued with Bullwhip effect, the distortion in information is escalated as it moves up in the chain. This variance can interrupt the smoothness of the supply chain process as each link in the supply chain will over or underestimate the product demand i.e. exaggerated fluctuations.
- 4. Contribution towards bullwhip effect There are many factors to cause bullwhip effect Disorganization between each supply chain link if it occurs then due to non uniformity in ordering leads to over or under reaction to the supply chain beforehand. Lack of communication between each link in the supply chain makes it difficult for the process to run smoothly and therefore order different quantities. Free return policies , customers order more demands intentionally to meet there inventory but cancel in between when supply becomes adequate. Order batching creates variability in the demand as there may be surge in demand at some stage followed by no demand.
- 5. Symptoms of bullwhip Some symptoms of Bullwhip are: Excessive inventory Poor product forecast Insufficient capacities Long backlogs Uncertain Product planning
- 7. BULLWHIP EFFECT EXAMPLE 0 20 40 60 80 100 120 CUSTOMER RETAILER DISTRIBUTOR MANUFACTURER UNITS
- 8. BULLWHIP EFFECT EXAMPLE In the above example, the actual demand for customer is 10 units, the retailer then orders 15 units from the distributor , an extra 5 units in order to ensure they dont run out of stock. Then the supplier orders 40 units from manufacturer so that to buy in bulk to ensure enough stock to provide timely shipment of goods to retailer The manufacturer then receives the order and it orders from their supplier in bulk i.e. 100 units to ensure economy of sale in production to meet demand. Now 100 units have produced to meet demand of 10 units which means the retailer has to increase demand by dropping prices or finding more customers that causes bullwhip effect.
- 10. CAUSES OF BULLWHIP EFFECT
- 11. DEMAND FORECASTING Based on the order history Amount of safety stock contributes bullwhip effect Lead time longer fluctuation more significant
- 12. ORDER BATCHING Two types:- Periodic Ordering:- Inventory systems based on order cycles Reduces order, billing and shipment cost amplifies variability and contributes bullwhip Push:- Company experiences regular surges in demand All customers orders should be spread out evenly throughout a week or month
- 13. PRICE FLUCTUATION Price fluctuations are upward or downward swings in the prices of products in an economy. Forward buy items were bought in advance of requirements Forward buying has a negative effect Forward buy a good idea-If cost of holding inventory is less than the price differential.
- 14. LONG LEAD TIMES A lead time is the latency between the initiation and execution of a process. Internal lead time is the time required for the buying organisation's internal processes to progress from identification of a need to the issue of a purchase order. External lead time is the time required for the supplying organisation's processes, including any development required, manufacture, despatch and delivery. Total lead time= internal lead time + external lead time
- 15. Inflated/ deflated orders due to Lack of information sharing
- 16. How to counteract bullwhip effect It can be counteract by following ways :- Avoid multiple demand forecast updates Break order batches Stabilize prices. Information sharing between firms along the supply chain to be accurate and timely. Small order increments. Focus demand and removal of sale incentives.
- 17. Avoid multiple demand forecast updates Forecasting at each level of supply chain. Processing the demand input from the immediate downstream member. The downstream data should be made available to the upstream site. Multiple organizations in a supply chain should use the same forecasting method. Just-in-time replenishment.
- 18. Break order batches Companies can use electronic data interchange to reduce the cost of placing orders and place orders more frequently. Total Cost = Ordering Cost + Carrying Cost Use of Electronic Data Interchange(EDI). Use of full-truckloads Mixed-SKU(P&G), Composite Distribution(eg. TESCO, Sainsbury), third party logistics.
- 19. Stabilize prices Reduce the frequency and level of wholesale price discounting. No exaggeration of orders.
- 20. Thank you