Lack of Coordination on the Performance on every stage of the supply chain, in trying to optimize its own objectives, can take actions that hurt the performance of the entire supply chain.
When this happens, profits for the entire chain are reduced. This happens because each stage is working independently and not taking into account the impact its decisions have on the rest of the chain.
Here you can understand the impact of lack of supply chain coordination and the bullwhip effect. Lack of coordination can hurt badly anyone those who is involved in the process of supply chain management.
When each stage of the supply chain tries to optimize its local objectives without considering the impact on the complete chain, the chain suffers. Profits for the entire chain are less than they could be if there was better coordination.
Likewise, information distortion within the supply chain can interfere with optimal decision-making and hurt the chain’s performance.
The lack of coordination increases inventory costs in the supply chain. To handle the increased variability in demand, a higher level of inventory 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.
Replenishment Lead Time
Lack of coordination in the supply chain can lead to increased replenishment lead times. The bullwhip effect creates more variability, making it difficult to schedule replenishment for the supplier. When there isn’t enough capacity or inventory to meet orders, it can cause problems.
The lack of coordination increases transportation costs in the supply chain. The transportation requirements overtime. As a result of the bullwhip effect, transportation requirements fluctuate significantly over time. This raises transportation costs because surplus transportation capacity needs to be maintained to cover high-demand periods.
Labor cost for shipping and receiving:
Labor costs increase when there is a lack of coordination in the supply chain. This is because it becomes more difficult to ship and receive products accurately. Additionally, suppliers are not always available when orders change, which means that the stages of the supply chain have to either hire excess labor or be prepared to vary labor capacity in order to meet customer demand.
Level of Product Availability
The lack of coordination between different members of the supply chain hurts product availability and results in more stockouts. This increases the likelihood that retailers will run out of stock, and as a result, the supply chain will lose sales.
Wrapping it Up
The text discusses the impact of a lack of supply chain coordination on profits. Specifically, the text mentions that each stage of the supply chain can take actions that hurt the performance of the entire supply chain. This, in turn, hurts profits for the entire chain. The text goes on to describe the phenomenon known as the bullwhip effect, which is a result of a lack of coordination.