Chapter 10 Discussion Questions

What problems result if each stage of a supply chain views its demand as the orders placed by the downstream stage? How should firms within a supply chain communicate to facilitate coordination?

If each stage of a supply chain views its demand as the orders placed by their downstream counterpart, the bullwhip effect is realized by the supply chain. Each member develops a forecast that is based on something other than the true customer demand and hilarity ensues. Supply chain members should share point-of-sale (POS) data so that all members are aware of the true customer demand for product. The beauty of data sharing requirements is that only aggregate POS data must be shared to mitigate the bullwhip effect; there is no need to share detailed POS data.

In what way can improper incentives lead to a lack of coordination in a supply chain? What countermeasures can be used to offset this effect?

Incentives that focus only on the local impact of an action result in decisions being made that achieve a local excellent but can avoid overall supply chain excellent. All supply chain partners should agree one global performance measures and structure rewards such that members are appropriately motivated. Commissions should be structured to provide incentives to consistently sell large volumes of product over a broad time frame to the sell-through point.

What is the bullwhip effect and how does it relate to lack of coordination in a supply chain?

The bullwhip effect is the fluctuation in orders along the length of the supply chain as orders move from retailers to wholesalers to manufacturers to suppliers. Each supply chain member has a different idea of what demand is, and the demand estimates are over done as the supply chain partner is distanced from the customer.

How do trade promotions and price fluctuations affect coordination in a supply chain? What pricing and promotion policies can facilitate coordination?

Trade promotions and price fluctuations make supply chain coordination more difficult. Customers seek to purchase goods for less and engage in forward buying which creates spikes in demand that may exceed capacity. All parties would benefit if the supply chain used every day low pricing (EDLP) to mitigate forward buying and allow procurement, production, and logistics to function at a steadier pace. If price incentives must be offered, the chain is better served by implementing a volume-based quantity discount plan instead of a lot size based quantity discount, i.e., providing incentives to purchase large quantities over a long period of time, perhaps a year.