Operations Management.the Bullwhip Effect

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The bullwhip effect in a supply chain
The Bullwhip Effect is a phenomenon that occurs in supply chain management when consumers overbuy, regardless of their needs, according to Business Dictionary.com. These large, unplanned purchases cause sudden and drastic changes in a small supply chain management and are difficult to attenuate because they cannot be precisely forecast. We can reduce this effect by doing the following:

Step 1
Improve the flow of information along the supply chain. Improving communication and forecasting end-user needs greatly assists in reducing the bullwhip effect, states Forio.com. In addition, look to day-to-day operations along the supply chain to observe trends and better predict customer demands. Supply chain managers should develop a forecasting system consisting of customer demands and supplier inventory, in concert with market fluctuations. Step 2

Reduce delays in the supply chain. Quick MBA.com recommends that small businesses use computer aided ordering to better track products along the supply chain. Cutting order to delivery time also greatly decreases fluctuations along with lessing inventory levels and operating costs. Step 3

Pay closer attention to point of sale purchases made by customers. Using your point of sale system to create reports that track customer preferences and ordering behavior. This helps to identify future trends as well as bettering communication along the supply chain. Step 4

Reduce your order sizes. In the retail industry, this refers to the economic order quantity--what Investopedia calls the "optimum order quantity"--meaning the purchaser of goods from a supplier gets a better price for ordering more of a particular product. While this provides a discounted price, it unnecessarily increases inventory levels and ties up more inventory purchase money. Ordering according to customer need instead of ordering for promotional discounts also assists in attenuating the bullwhip...
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