In general forecasting the demand and then concluding the right operations in the purchasing- and warehousing stage seems to be a feasible task. But when disorganization a lack of communication and misinterpretation take place between the different stages of a supply-chain, the Bullwhip-effect will destroy all planning’s.
What is the Bullwhip-Effect?
The Bullwhip-effect can be explained as an increasing variability of demand/orders when moving upstream the supply chain (see Figure):
Consequently the interpretation of the given demand data from stage to stage in the supply chain gets harder to interpret. Will the next order higher or lower? Do I need more inventory or do I have to reduce stock in my warehouse?
Why does it occur?
- Misinterpretation of large/low demands of the supply-chain level before hand
- Panic reactions after unmet demand
- No Communication between the different stages
- Disorganization of the whole supply-chain
- Lead-Time too high
- Wrong order batching (only weekly/monthly instead of steady)
- Distortion of steady demand because of price variation
How to solve this Bull-Whip Problem
- Reduction of uncertainty through strategic alliances in the supply-chain (Vendor Managed Inventory)