The supply chain management has been achieving meaningful importance nowadays due to the increase of trade globally, a fact that complicates every stage of the supply chain in every company. A large number of operators through the supply chain, increasing and huge demands, more and more consumers… All these factors affect the way the companies manage their logistical operations, and today we are going to talk about a phenomenon that could appear in the upstream levels of the supply chains: the Bullwhip Effect.
What does it consist of?
The bullwhip effect is the trend that drives to an excessive inventory and order fluctuation at the upstream levels. The imbalance begins because each member of the supply chain makes a demand forecasting based on the order information of the previous member of the supply chain instead of the real demand of the market. This fact usually occurs when the orders flow from the retailer to the wholesaler and then, from wholesaler to the producer.
To be more clear, here you can watch more visually how the bullwhip effect is produced:
- Lack of information between suppliers and intermediate buyers.
- Operation without a predetermined order in the production orders, generating volatility in the shipments.
- Possible periods without the demand for the goods.
- Possibilities to take advantage of wholesale discounts, generating problems of time.
- Inflated or strategic orders, taking advantage of conditions or market opportunities.
- Uncertainty in the supply, which can generate unnecessary orders.
How can we combat against the Bullwhip Effect?
- Looking for constant demands through the elimination of offers and discounts for the customers.
- Improving the communication of the information in each level of the supply chain thanks to the centralization.
- Increasing the efficiency of the order management.
- Improving the technology of information that every actor uses along the supply chain.
Furthermore, as a way of expanding this interesting concept, there are more implications than the fluctuations of the orders along the supply chain, and this effect could be positive in other ways and situations. I am talking about the “Green Bullwhip Effect“, which is based on transferring environmental requirements along the supply chain. For more information, you can click on the link.