1 - Karen Siegfried
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Bullwhip Effect
Consider and discuss an area in your supply chain that could be subject to the bullwhip effect. Give an example of how this can happen and provide some ideas on how to mitigate the effect.Special projects cause our consumer (or end user) to require a much higher quantity of inventory items which can deplete inventory making the item unavailable for the rest of the site. Better planning would mitigate this effect. The planning department should let the Procurement department know ahead of time or place a special order rather than depleting inventory. Should a higher minimum quantity be held in inventory the planner can notify the procurement department to make this change.Another example would be a shortage that causes panic “hoarding”. When antibacterial wipes were on back order a year ago, the last of the inventory stock was signed out in much higher quantities that usual and stockpiled by our underground workers. We were waiting on back orders and trying to order higher quantities which the supplier could not keep up with. The way that this was mitigated was when the next shipment arrived, they were not able to be signed out without supervisor approval to ensure that excess were not signed out and stockpiled and that everyone who needed got some.
- Cynthia
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Re: Bullwhip Effect
Bullwhip effect and ideas on how to mitigate
Inventory is an area in the supply chain that is subject to the bullwhip effect. Materials and goods needed at every stage of the supply chain are pulled from inventories. When there is an unpredictable change in demand, we fall back to inventory and it is also the case, when there are disruptions in supply.
Recently the forecasts from planning department showed an increase in demand for our products from some customers. Buyers were advised to double orders for several production components. Effect was excess inventory that increased costs on storage and affected profits. To mitigate this effect ,planners should work closely with the customers to get correct demand forecasts. It means building better relationships with these customers.
- Karen Siegfried
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Re: Bullwhip Effect
Cynthia, I agree with the comment regarding building better relationships with customers. I have been seeing benefit in my current role from the situations where there are strong relationships and have noted this as a personal goal for 2020 to better more relationships.
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Thread Starter- Angela Toth
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Re: Bullwhip Effect
Price variations such as discounts or cost increase can disrupt regular procurement patterns, causing a bullwhip effect. Retailers and distributors may begin to increase their inventory if the price is attractive - thus the orders are greater than the actual demand, opposite concept if the price jumps and is ultimately unattractive at the time. The price fluctuations do not change the demand or long-term needs of the end user or consumer. The end user may postpone or increase their purchasing at that time as well. The balancing of supply and demand causes a bullwhip effect.
- Angela Toth
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Re: Bullwhip Effect
@Karen - i agree, this would be applicable to vendor managed inventory as well- if you have a relationship that you're suppliers/distributors keep on-hand parts/materials specific to your business on your behalf, and either a large project or potentially unexpected event occurs that requires you to deplete that on-hand inventory, you risk other areas of your business that would require those materials as well. Maintenance parts and materials are typically vendor-managed for our organization. With ~100 branches using the same supplier/distributor for parts - they manage the inventory based on historical trends and data from the maintenance department. i have seen that a large Capital project demands a large amount of the stock, and requested from another department other than maintenance to the supplier can quickly cause supply challenges - especially with large components that can have up to 20 week lead time.
These events can be mitigated by demand planning and forecasting. Having an understanding of upcoming maintenance events, proper preventative maintenance, and having an understanding of what your critical spare parts are, and their lead time, can reduce the amount of unplanned purchasing.
- nnzewi
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Re: Bullwhip Effect
The area in my supply chain that could be subject to bullwhip effect is the distributor sector of the supply chain. The retailer has a surge in demand due to an event or chains of events that took place over some days. The retailer increases his order to the distributor by 25%. The distributor in turn increases his order to the manufacturer by 25%. The final order to the manufacturer is an additional 25% of the retailer's order. The manufacturer may or may not increase his production (here, I assume he doesn't). At the time the event is over, The retailer sees no need for the additional 25% order and demands for his usual quantity of order (50% less of total request to the manufacturer) as a result of a decrease in the final consumers (events are over). The result of the bullwhip effect of excess inventory and transportation cost is borne by the distributor.
To mitigate the bullwhip effect, players in the supply chain should:
1. Ensure transparency and information sharing throughout the supply chain.
2. Rely less on forecasting and depend more on direct demand data.
N. Nzewi.
- Karen Siegfried
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Re: Bullwhip Effect
Angela, agreed - vendor managed inventory is a consideration for some of the items. We have moved some inventory (very little to date) to vending machines and have one site with an on site store managed by the supplier. But yes, it may be a great option for more items.
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Thread Starter- Mo
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Re: Bullwhip Effect
The bullwhip is a situation in which small fluctuations in demand at the downstream end of the supply chain may cause outsized variations at upstream suppliers. The effect is a bloated and ineffective supply chain with too much inventory
Inventory optimization based on demand projection is one area in my organization supply chain that can be subject to the bullwhip effect. Many customers demand records are used to project our procurement to meet the demand of those customers.
Unexpected natural occurrence, for example, COVID-19 could cause the procured inventory to sit due to entrance restriction into different countries in the world where these customers are. The effect will result in a bloated and ineffective supply chain.
How to Mitigate the effect:
1. Collaborate with customers and suppliers
2. Improve forecast accuracy
3. Enable fast decisions with visibility and insight
4. Adopt a demand-driven supply chain management approach
- Mo
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Re: Bullwhip Effect
@Nnzewi I agree with you on transparency to mitigate the risk effect. Nevertheless, planning and forecasting play a major role in supply chain management. The players should ensure improvement in forecast accuracy and enable fast decision with visibility and insight.
- nnzewi
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Re: Bullwhip Effect
@MO, yes, planning and forecasting are mitigants as well, but forecasting depends on the reliability of the information on which the forecast is based. Bullwhip effect is the uncertainty caused by the information flowing upstream and downstream the supply chain.
A good example of the covid-19 you used there.
N. Nzewi.