‘ Bull-Whip Effect. Causes & Impact. How Can Improved It Support Reduce Bullwhip Effect

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Bullwhip Effect Causes and Impact. How Can Improved IT Support Reduce Bullwhip Effect

Dnyanesh Sarang

Table of Contents

1 Introduction 2

2 Supply Chain & Bullwhip Effect 2

3 Causes of Bullwhip effect 4
3.1 Demand Forecast Updating 4
3.2 Order Batching 5
3.3 Price Fluctuation 5
3.4 Rationing and shortage gaming 5

4 Impact of Bullwhip Effect 6
4.1 Manufacturing Cost 6
4.2 Inventory Cost 6
4.3 Replenishment Lead Time 6
4.4 Transportation Cost 6
4.5 Level of Product Aavailability 6
4.3 Profitabilityy 7

5 How can improved IT reduce Bullwhip effect 7
5.1 Sharing Point of Sales Data(POS) 8
5.2 Implementing Collaborative Forecasting & Planning (EDI & CAO) ……….. 9
5.3 Designing Single Stage Control of Replenishment (CRP & VMI) 10
5.4 Conclusion 11

References 12

1. INTRODUCTION:

From many years Bullwhip Effect has played crucial role in supply chain management. Proctor & Gamble (P&G) has seen the bullwhip effect in case of supply chain of Pampers diapers, which caused increase in cost and more and more tedious to cope up supply with demand in market.(LPW 2004). Lee, Padmanabhan and Whang (2004) define the bullwhip effect as “the amplification of demand variability from a downstream site to an upstream site” These same authors, Lee, Padmanabhan and Whang (1997),outline four major causes of the bullwhip effect; Demand forecast updating, Order batching, Price Fluctuation, Rationing and shortage gaming respectively. S.Chopra, P.Meindl summarize the impact of bullwhip effect on different performance measure like Manufacturing Cost, Inventory Cost, Replenishment lead time, Transportation Cost, Shipping and receiving cost, Level of product availability and profitability. Lee, Padmanabhan and Whang (1997) summarized framework and various initiative against bullwhip effect. Different majors elaborated here for the best policies of information enrichment and information sharing smoothly at each stage of supply chain. IT solutions are



References: Benjamin, R.I., De Long, D.W. and Scott, M.S., 1990. Electronic data interchange: how much competitive advantage?. Long Range Planning 23 1, pp. 29–40. Chen et al., 2000a. F. Chen, Z. Drezner, J. Ryan and D. Simchi-Levi , Quantifying the bullwhip effect in a simple supply chain: The impact of forecasting, lead times, and information. Management Science 46 3 (2000), pp. 436–443 Chen, J Chopra, S., & Meindl, P,. Supply Chain Management: Strategy, Planning and Operations (2nd ed.) (2004).. New Jersey: Prentice Hall Emmelhainz, M.A., 1993 H.L. Lee, V. Padmanabhan and S. Whang, Information transformation in a supply chain: the bullwhip effect. Management Science 43 4 (1997), 546–558 Kaminsky, P., Simchi-Levi, D., 1998 a supply chain: The bullwhip effect”. Management Science. 50(2004), 1887-1893.

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