|
The problem for Bull Whip effect arises from the part of
the channel members when they do not share data with one
another. The problem is with interpretation. Usually a
distributor takes feed back from the retailers for
placing the order backwards in the channel. Now, at any
given point of time if there is a surge of demand from
the retailer for some item, the distributor may get the
message that there is increase in the demand of it. But
in reality may be the reason for demand increase lies
with some sales promotion part or some other reason
except natural demand increase from customer. But due to
non sharing of this data by retailer with his
distributor, the distributor gets a wrong impression and
he places more order backwards. This order magnifies
itself as it goes backwards in the channel and by the
time reaches the firm it has assumed a gargantuan shape.
Now this is known as Bull whip Effect which starts as
small and goes to become a large shape.
Thus the main basis of Bull Whip could be found with
wrong interpretation by channel members due to non
availability of data amongst themselves. Here customer
demand fluctuations shouldn't be blamed as they are
bound to have a mind of their own and we have to make
our Supply Chain such that these variations are easily
absorbed. Transparency is required and also regular
communications among all the channel members should be
their to ensure that Bull Whip problem shouldn't arise
because ultimately they are going to suffer with huge
inventories
Bullwhip is the result of misinterpretation of increase
in demand, improper sharing of information. Even if we
try to optimize our understanding and interpretation
levels, what is more important here is that SYSTEMS,
PROCESS, PROCEDURES delivers RESULTS!! Operators/Members
just operate. It is a natural tendency of human being to
estimate increase in demand thus the multiplicity of
demand occur. The system should be transparent enough to
let the members have a common data knowledge, and a
common objective.!
After discussing the bullwhip effect, now what steps
should be taken to minimize it?
Bringing transparency among all links in the chain would
bring down this effect. All the players in the chain
should share the information and data with each other.
What other measures have proven successful in dealing
with this problem?
The problem/obstacles which generally lead to BullWhip
Effect are of 5 types. If companies are able to overcome
these difficulties then Bull Whip Effect wouldn't be a
threat. These are:
1. Incentive Based Obstacles
2. Informational Obstacles
3. Operational or Lead time Obstacles
4. Financial Obstacles
5. Behavioural Obstacles
The incentive based obstacles are generally with the
sales people of the company. The incentive system is
such that salespeople get bonus for all the sales they
make to their customer who are generally wholesalers or
in some case retailers. They are not concerned whether
the sales have been made to the actual users i.e. common
people who are actually going to use it. Thus they dump
their products on the channel members and generating
false sales and giving wrong information for achieving
targets.
Operational Obstacles means the amount of lead time for
the material from supplier to Lead Firm and the amount
of time for the product to reach the market from the
firm. Thus higher the lead time, the Bull Whip would go
on increasing. Thus there is a need for lowering that.
Behavioural obstacles are with the company management
who are only thinking of attaining local optimisation
instead of going for the whole supply chain which will
ultimately going to benefit all. But this mentality is
not so easy to achieve wherein all are working to
achieve some common objective but instead all the trying
to increase its profitability over the expense of other
partners
Finally, there is financial obstacle where we talk about
pricing. The pricing decision of the firm should be used
only by the finance deptt. and not by the marketing
deptt. The pricing should be such it should take care of
all the costing and profits. No company should try to
use low pricing method as means to market their
products. They should try to increase their profits by
lowering their costs of various operations which comes
under supply chain management. Like if two modes of
transportation are present for taking from A to B, and
takes 1hr & 3 hrs respectively, with same cost then
everyone would go for the faster one. Thus in the same
way customer want the best with the same price as
available in the market. Higher the satisfaction he gets
the better the result
One can find out the solutions only when considering the
actual obstacles, very well brought out by him.
Adding to these points are : A company/Product
manufacturer should not only focus on the manufacturing
and then product delivery part to the immediate customer
(distributors, retailers) but should also keep in mind
that whether the product has reached the customer or the
end user or not. This requires integration. The good
example here is HUL. HUL has the system in which it
collaborates the different partners of the supply chain,
the distributors, retailers etc. They have a big system.
Although maintaining such a collaboration isn't easy but
the approach is right and results benefit for the
organization.
The other aspect is to have global objectives rather
than local ones or at the individual partner level.
Another prospective ,to add, of Supply Chain, which is
very much helpful to minimize Bullwhip effect and many
organizations are using it. There are 2 types of Supply
Chains:
1) Push types Supply chain (It is a forecast based Supply Chain where each
activity takes place in advance assuming that customer
will have this much of requirement in future ) and
2) Pull types Supply Chain (It is a demand driven Supply
Chain where each activity will take place after
receiving of actual customer order).
If an organization using Pull types supply chain then
bullwhip effect will be minimal as each and every order
will be placed on the actual customer demand not as per
the forecast. The Key success of Pull System depends on
the sharing of actual demand data at each level.
Dell computer is the best example of Pull system where
actual customer demand data shared among the suppliers
on real time basis and by using such method Dell is
capable to deliver all its order to the customers on
time with zero inventory level.
|
|
|
Surely the sharing of data would only go so far to
minimize or mitigate the issues arising from the Bull
Whip effect? While is it nice to know what the 'actual
consumption rate' is for any given product, many
companies still rely upon ERP systems to plan,
replenish, & reserve inventory for the channel. Just
'knowing' is not enough for many of these ERP systems, I
see more of a need to actually book & physically reserve
inventory for a channel to consume stock at the DC.
Without doing this companies would run the risk of order
queue-jumpers where the DC stocks are taken by one
customer ahead of another. Despite having knowledge,
presumably via VMI or another initiative, of one
customers stocks & consumption rates, it is next to
impossible to avoid inventory being sent to another
party who simply orders product on the day.
The dilemma of course to to ensure there is an
appropriate mechanism for securing inventory for any VMI
enabled customer in an effort to manage the Bullwhip
event.
How can a company reserve inventory in a lean &
optimal manner without running a risk of stock out for
the non-VMI channels? Who can say "sorry that inventory
is reserved..." while only relying upon 'knowledge'
alone?
The most effective means of mitigating Bullwhip is via
channel awareness & customer education.
This is where Toyota's efforts to educate their competitors,
channel partners, and general industry as being a
pioneering process to removing Bullwhip events from
global supply chains.
If this off take rate at each channel partner is known
to all the other partners then the preceding supplier
can supply goods at the same time as well make a proper
interpretation the nature of the off take. If this is
followed backwards in the same fashion then it would
surely help to mitigate the BULLWHIP effect through such
Continuous Replenishment. |
|
|
As described , transparency and education over the whole
supply chain is one way, but it does not depend on your
company only, and therefore it will be a long way to
optimize.
Another way to avoid the propagation of this effect is :
you have to work on your lead time reduction. When you
will be fast enough to react to your customers changes
in the time they require, you won't need any more
forecast. The effect won't be propagated to your
suppliers, and the bullwhip effect will not last.
When anyone in the loop achieved this point, demand
changes will not create some bullwhip effect.
|
It can happen when the supplier does not have enough
visibility on final consumer demands and forecasts began
to overreact following the interpretation that is the
situation at the moment "t". more collaboration from end
to end supply chain is necessary in a win - win logic.
There is a great game that points up how supply chains
respond to forecasted and unforecasted demand called the
beer game. Players assume certain critical roles in the
supply chain, are set up with initial inventory, and
then you play and watch the fun. Its unbelievable what
happens between players with very little end user demand
swings
The Beer Distribution Game:
http://www.beergame.lim.ethz.ch/
Supply chain simulation game
...explains inefficiencies of supply chains known as the
bullwhip effect.
We have played this game during our sessions of world
class manufacturing and the result of which is we called
the BULLWHIP effect. The results show that it is not
fully the fault of the people who operate different
processes in a supply chain, but the problem is the
system. "An average person can perform well in an
Efficient supply chain, but even a efficient person
would not be able to perform so well in an average
system" Systems deliver result, operators just operate.
I am trying to conclude is that the dynamics of any
supply chain lies in its structure.
1) I always compare it to a traffic phenomenous - Traffic
jam : a small car movement on the road can cause big
waves of cars slowing down a few kilometers behind ...
2) I did also run the Beer game a couple of times and
it's a super business case. It 's not easy to manage,
but results are great.
Process integration therefore is the need of the hour
for the Supply chain partners for benefit sharing
through:
-
reduced costs in inventory holding
-
utilizing opportunity cost in better product
design and
-
manufacturing and earning more profit
|
