Bullwhip effect

Topics: Supply chain management, Supply chain management terms, Electronic Data Interchange Pages: 2 (445 words) Published: May 25, 2014
Ways to cope with Bullwhip effect
As we known, Bullwhip effect threatens Company’s profit. So, the means that how company cope with this effect is so important in supply chain management. There are five steps to avoid Bullwhip effect. Firstly, reducing uncertainty of demand forecast. We can use centralized demand information that the production of each stage of supply chain bases on the actual demand forecast. As we know, production based on the actual demand will make a more accurate production data, and it will decrease the variability of mismatch cost on each stage. So, centralized supply chain will help to easy the Bullwhip effect. Also, we can let major player in supply chain access to point of sale data, encourage share of information, and using techniques such as electronic data interchange (EDI is a process companies can use to interchange information electronically) and computer assistant ordering (CAO is a computer program that monitor inventory and automatically ordering when needed) Then, reducing fluctuating prices. Setting a stable price also can help to reduce the Bullwhip effect. Company usually uses promotion to push product’s sales. However, it will generates violate ordering pattern. In order to smooth the ordering pattern, we can use “everyday low price” strategy. A Stable and fair price can prevent from unexpected huge increase on demand. Moreover, offer special purchase contract to encourage ordering at regular time intervals. Next, lead-time reduction also is important to prevent Bullwhip effect. There are two kinds of lead-time. One is order lead-time, which is the time between production and shipment. The other is information lead-time, which is the time to take process an order. We can use cross docking to reduce order lead-time. Based on the definition, “Cross docking is a logistics procedure where products from a supplier or manufacturing plant are distributed directly to a customer or...
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