Assignment
Defination of Bullwhip effect in supply chain
The bullwhip effect is a supply chain phenomenon describing how
small fluctuations in demand at the retail level can cause
progressively larger fluctuations in demand at the wholesale,
distributor, manufacturer and raw material supplier levels. The effect
is named after the physics involved in cracking a whip. When the
person holding the whip snaps their wrist, the relatively small
movement causes the whip's wave patterns to increasingly amplify in
a chain reaction.
I Lack of supply chain coordination and the bullwhip
Poor communication can lead to an overestimated demand and an increase in
inventory levels, causing the bullwhip effect. Poor communication can also
lead to delays in the flow of information between supply chain partners.11 Jul
2023
ii. The effect on performance of lack of coordination
1. Manufacturing Cost
The lack of coordination increases manufacturing cost in the supply chain. As a result of the
bullwhip effect, P&G and its suppliers must satisfy a stream of orders that is much more
variable than customer demand. P&G can respond to the increased variability by either
building excess capacity or holding excess inventory (see Chapter 8), both of which increase
the manufacturing cost per unit produced.
2. inventory Cost
The lack of coordination increases inventory cost in the supply chain. To handle the increased
variability in demand, P&G must carry a higher level of inventory than would be required if
the supply chain were coordinated. As a result, inventory costs in the supply chain increase.
The high levels of inventory also increase the warehousing space required and thus the
warehousing cost incurred.
3. Replenishment Lead time
Lack of coordination increases replenishment lead times in the supply chain. The increased
variability as a result of the bullwhip effect makes scheduling at P&G and supplier plants
much more difficult than when demand is level. There are times when the available capacity
and inventory cannot supply the orders coming in. This results in higher replenishment lead
times.
4. Transportation Cost
The lack of coordination increases transportation cost in the supply chain. The transportation
requirements over time at P&G and its suppliers are correlated with the orders being filled.
As a result of the bullwhip effect, transportation requirements fluctuate significantly over
time. This raises transportation cost because surplus transportation capacity needs to be
maintained to cover high-demand periods.
5. Labor Cost for Shipping and Receiving
The lack of coordination increases labor costs associated with shipping and receiving in the
supply chain. Labor requirements for shipping at P&G and its suppliers fluctuate with orders.
A similar fluctuation occurs for the labor requirements for receiving at distributors and
retailers. The various stages have the option of carrying excess labor capacity or varying
labor capacity in response to the fluctuation in orders. Either option increases total labor cost.
6. Level of Product Availability
Lack of coordination hurts the level of product availability and results in more stockouts in
the supply chain. The large fluctuations in orders make it harder for P&G to supply all
distributor and retailer orders on time. This increases the likelihood that retailers will run out
of stock, resulting in lost sales for the supply chain.
7. Relationships across the Supply chain
Lack of coordination has a negative effect on performance at every stage and thus hurts the
relationships among different stages of the supply chain. There is a tendency to assign blame
to other stages of the supply chain because each stage thinks it is doing the best it can. The
lack of coordination thus leads to a loss of trust among different stages of the supply chain
and makes any potential coordination efforts more difficult.
