Question

• What is the impact of the bullwhip effect on the distribution and warehousing of a supply chain?
• What are some methods that can be used to prevent it?

Answer 1

Bullwhip effect happens when smaller changes at the retail level cause bigger changes up the supply chain. The phenomenon starts at the retail level where a sudden spike in the sales over a smaller period makes the retailers to place orders in liberal quantities with the previous member of the distribution chain ( wholesaler). This liberal quantity would make the wholesaler to order even more quantity with the warehouse, so that it might not run out of the stock. This augmentation amplifies to very high level till it reaches the production level, as a small change becomes too big for the manufacturer, who wants to produce even more in anticipation of high sales and for avoidance of stock out. The problem occurs when the changes observed at the retail level are not sustainable and when the demand returns to its original level, there is a huge inventory piled up across all levels of the distribution channel.

Bullwhip effect can be prevented by facilitation of better communication between the supply chain partners, who can provide the real time information on the sales pattern so that inventory decisions can be taken in time, avoiding the overstocking. Technology can be used to forecast more accurately and autocorrect the supply in wake of demand changes in shorter period, so that the small changes are not magnified. Technology can also be ued for better supply chain visibility and reducing the response time by making the processes more agile and responsive to changes.