Supply Chain Coordination & Bullwhip Effect
Coordination in the supply chain is one of the major and most important things. Without coordination supply chain couldn’t exist. The supply chain coordination improves when all stages of the chain act together to increase total supply chain profits.
Supply chain coordination requires each stage of the chain to consider the impact of its actions on other stages. It occurs either because of the objectives of different stages of the supply chain conflict or because information moving between stages is delayed and distorted.
Several stages in a supply chain may have conflicting objectives if each stage has a different owner.
- Due to incomplete information sharing between stages.
- Information is distorted as it moves along the supply chain.
- In each stage of the supply chain, this can result in a great deal of information being shared.
- Considering there are thousands of dealers and suppliers, if the information is distorted, this may increase the number of products, and the quantity available is known as the Bullwhip Effect.
- As orders move up the supply chain from retailers to wholesalers to manufacturers to suppliers due to a lack of supply chain coordination, they tend to fluctuate more.
The bullwhip effect occurs when demand forecasts fail to produce supply chain efficiencies. As we progress up the supply chain, we see increasing swings in inventory in response to shifting consumer demand.
In simple words, we can say that simply if due to the false information flow the manufacturer will produce a higher amount of product but the actual demand for the product is way less than the production.
How Actually Bullwhip Effect Occurs?
- Due to the lack of an information-sharing chain.
- Order batching may cause it eventually.
- Price of the product & the promotion.
- Demand forecasting and not updating.
- Holding back the products when demand exceeds.
Actual Scenario Understanding of Bullwhip Effect.
- There is a demand for 19 units.
- However, the forecaster believes that customers may require 21 units.
- Now that the information has been shared with the retailer to meet the customer’s needs, the retailer has indicated that the customer might need 30 products in the future. They may keep the stock for future needs.
- In order to get a better discount from the manufacturer, the distributor has ordered 40 units from the manufacturer.
- For a lower cost of raw materials, the manufacturer has ordered the raw materials for 50 units and produced them.
- However, the customer only needs 19 units, but production has doubled.