Analysis of the bullwhip effect in the supply chain
The bullwhip effect is the result of distortion of demand information. Many empirical studies and business surveys have found that this phenomenon widely exists in the manufacturing supply chain. in the structure. So, here is the analysis of the bullwhip effect of the supply chain provided by me. You are welcome to read and browse.
Definition:
A few years ago, when Procter & Gamble managers were examining the order distribution patterns of their infant disposable diapers, they were surprised to find that although infants’ consumption of the product was relatively stable, Sales at retailers have not fluctuated much, but orders received by manufacturers from dealers have fluctuated significantly. During the same period, orders from manufacturers to raw material suppliers have fluctuated even more.
In the supply chain, there are often problems such as inaccurate forecasts, unclear demand, unstable supply, poor cooperation and coordination between enterprises, resulting in lack of supply, unbalanced production and transportation operations, and high inventory levels. Too high, the cost is too high, etc. There are many sources of these problems, but one of the main ones is the Bullwhip Effect. The bullwhip effect is a phenomenon of demand variation amplification (variance amplification) in the supply chain. When the information flow is transmitted from the final client to the original supplier, the sharing of information cannot be effectively realized, causing the information to be distorted and gradually Level amplification has led to greater and greater fluctuations in demand information. This amplification of information distortion looks like a whipped bullwhip in the graphic display, so it is vividly called the bullwhip effect.
The bullwhip effect is the result of distortion of demand information. Many empirical studies and business surveys have found that this phenomenon widely exists in the supply chain structure of the manufacturing industry. When each node enterprise in the supply chain only makes production or supply decisions based on demand information from its adjacent subordinates, the unreality of the demand information will flow up the supply chain, resulting in a step-by-step amplification phenomenon, and each node enterprise They make forecasts from their own perspective and tend to increase inventory to cope with demand uncertainty. Under the influence of this demand amplification effect, upstream suppliers tend to maintain higher inventory levels than downstream suppliers, so the bullwhip effect occurs.
In the supply chain, the information of each supply chain node enterprise has an information distortion, and the degree of this distortion is gradually amplified upstream along the supply chain, causing the degree of fluctuation of order quantities to increase along the supply chain. The chain keeps growing. Obviously, this phenomenon will bring serious consequences to enterprises: increased product inventory levels, reduced service levels, excessive total cost of the supply chain, and low degree of customization, etc., which will inevitably reduce the overall competitiveness of supply chain enterprises. , ultimately causing every member of the supply chain to suffer losses. Therefore, it is of great practical significance to analyze the causes of the bullwhip effect, explore corresponding rectification strategies, and weaken and eradicate its negative effects in order to improve the agility of the supply chain.
Reasons:
When Procter & Gamble studied the market demand for diapers, they found that the retail sales of this product were quite stable and not very volatile. However, when inspecting the ordering situation of the distribution center, it was found that the degree of change in its orders was much greater than the fluctuation of the retail quantity, and the distribution center placed orders based on the summary of sellers' ordering requirements. Through further research, it was found that in order to be able to cope with the changes in increased customer demand, retailers often enlarge the predicted order quantity from historical and actual sales conditions before ordering from wholesalers. Wholesalers also make orders out of the same consideration. Place additional orders. In this way, although customer demand fluctuates little, the actual demand is gradually amplified by increasing orders.
For example, a retailer's historical highest monthly sales record of a certain product is 100 pieces. In order to cope with the shortage of sales during the upcoming major holidays, he will add X pieces on this basis, and the order quantity is (1 X) 100 pieces; his The upper-level wholesaler will also add Y pieces to its order base. Therefore, the quantity ordered from the manufacturer becomes (1 Production in quantity, increasing layer by layer, leads to the bullwhip effect.
The reasons for the bullwhip effect mainly come from 8 aspects:
1. Demand forecast revision. Members in the supply chain use different forecast models to make their own forecasts. The data used are limited to direct orders from downstream customers, and they have a very good grasp of the future. Therefore, they often add a correction increment to the forecast value as the order quantity, resulting in
2. Price fluctuations. Faced with severe price fluctuations, promotions and discounts, short supply, inflation, natural disasters, etc., retailers and distributors often increase inventory, making order quantities far greater than actual demand;
3. Order quantity. Enterprises often use the maximum inventory strategy for ordering, and then order bulk orders from suppliers in one cycle or after a certain amount is aggregated, which makes upstream suppliers see an unreal demand;
4 .Environmental variation. This is due to the uncertainty caused by changes in policy and social environment, which has led to an amplification of ordering demand. Generally, the main way to deal with it is to hold high inventory, and the greater the uncertainty, the higher the inventory, but this high inventory does not represent real demand;
5. Shortage Game. When demand for certain products increases in the market, retailers and distributors will suspect that these goods will be in short supply, which triggers them to increase order quantities. But when demand cools down or the shortage ends, the large order quantity suddenly disappears, causing errors in demand forecasting and judgment, leading to the bullwhip effect;
6. Inventory imbalance. In traditional marketing, the supplier generally delivers the goods to the seller, and the inventory responsibility still belongs to the supplier. The settlement will be done after the sale is completed, but the goods are controlled and dispatched by the distributor. This has led to sellers generally tending to increase order quantities to gain inventory control, thus exacerbating the increase in order demand and leading to the bullwhip effect;
7. Lack of collaboration. Due to the lack of information exchange and sharing, companies cannot grasp the real demand of downstream and the supply capacity of upstream, so they have to store more goods on their own. At the same time, inventory exchange and transshipment cannot be realized in the supply chain, and each can only hold high inventory, which will also lead to the bullwhip effect;
8. Lead time. Changes in demand increase with the growth of lead time, and the longer the lead time, the greater the order quantity caused by changes in demand. Enterprises often want to leave a certain amount of room for delivery dates because they have a lot of concerns about the exact time of delivery. , thus holding a longer lead time, so the gradual lengthening of the lead time also causes the bullwhip effect.
Illustration of the bullwhip effect:
Methods to reduce the bullwhip effect
The first method is to improve the accuracy of predictions. This needs to consider factors such as historical data, pricing, season, promotion and sales. Some data are in the hands of retailers and distributors. Good communication must be maintained with them - global brand networks - to obtain these data in a timely manner and take the above measures. Share forecast data among downstream parties and use similar forecasting methods for collaborative forecasting to improve the accuracy of forecasts;
The second method is to reduce the number of levels in the supply chain, making the bullwhip very short and even causing the bullwhip effect. Not obvious.
The third method is to use seller-managed inventory to fundamentally eliminate the bullwhip effect.
The fourth method is to achieve information sharing. This is one of the most effective measures to reduce the bullwhip effect.
Supply chain members use the Internet/EDI to realize real-time communication and sharing of information, reduce and eliminate information asymmetry, and accurately grasp the actual needs of downstream companies. ;