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