Chapter 19 Bullwhip Effect
Shortage Gaming
known shortages encourage customers/retailers to inflate order quantities Order inflation
bullwhip effect
occurs when distorted product-demand information ripples from one partner to the next throughout the supply chain
channel stuffing
shipping surplus inventory to wholesalers and retailers at an excessive rate
forward buy
when buyers stock up to take advantage of low price offers
Diverters
A retailer who sells inventory and cannot sell itself to another retailer
order-up-to policy
Amount of inventory ordered during one time interval is equal to the demand in the previous time interval Standard deviation of the retailers' orders in one time interval is equal to standard deviation of the consumer demand in that time interval
Incentive Conflict
An action that might maximize one firms profit may not maximize another firm's profit
Collaborative planning forecasting and replenishment CPFR
Both suppliers and retailers share with each other their intentions
Continue replenishment
Computer guided replenishment systems As an example, retailer plans to run a promotion that will increase demand by 20 times and shares this information with the supplier
Electronica data interchange
Order is transmitted in an electronica format that can be received by the supplier
Five causes of bullwhip effect
Ordered synchronization Order batching trade promotion Overreactive ordering Shortage gaming
demand pull
Orders made for inventory exactly equal to demand during that time interval
Turn-and-earn
Supplier announces allocation to each retailer proportional to retailer's past sales
Order Synchronization
Bull whip affect emerges when retailers order cycles become even a little bit synchronized, basically, tending to cluster around the same time period
hockey-stick phenomenon
MRP jitters Supplier receives order for its product during the first week of the month and relatively little demand later in the month
phantom orders
Making an order for inventory just in case you need it but then actually canceling it
production smoothing
Producing extra inventory during periods of low demand, which is then consumed during periods of high demand
vendor managed inventory
an inventory management system whereby the supplier determines the product amount and assortment a customer (such as a retailer) needs and automatically delivers the appropriate items
Order Batching
When companies place large and infrequent orders from their suppliers
trade promotions
advertising to wholesalers or retailers to get them to purchase new products, often through special pricing incentives
On allocation
allowance, portion, share
