To The wholesaler satisfied the demand by
To avoid this situation, thewholesaler increased the communication by regularly letting the company knowabout the size of the inventory and the actual demand. Today, the situation is goingbetter but it seems that it is not sufficient as the demand is unpredictable.
Therefore, it happens that forecasts are wrong and some disorder appeared inthe SC. At this moment, the company is not planning to instore blockchain intoits SC but it may be a solution. As previously mentioned, price fluctuationis one of the principal cause of the appearance of Bullwhip effect in the SC.
Iexperienced it, while I was working for a French jewellery (the retailer in theSP). In fact, the factory producing the jewellery made an important pricediscount to the wholesaler as he was purchasing big volumes of earrings, morethan what he needed. After this purchase, the warehouse was full. The problemwas that the actual demand information of the wholesaler was not reflected intheir purchases to the factory, as the size of the wholesaler’s replenishmentorders did bear no relation with the jewellery’s demand, which led to wrongforecasting upstream the SC. The wholesaler satisfied the demand by disposingof the stored earrings which distorted the factory’s forecasts, which saw adecrease in sales when comparing to previous periods. The erroneous forecastspushed the factory to decrease the production of earrings, which resulted instock disruption in the warehouse and to the rest of the SC. And so, we couldn’tsatisfy our clients regarding the earrings for a period of 6 weeks. Annexes: Researches show that it is possible tocounteract the bullwhip effect by improving information sharing, channelalignment and operational efficiency (Zimmermann, 2002).
This process is getting every dayeasier thanks to the invention of blockchain. In fact, blockchain isrevolutionizing the supply chain as traceability and transparency are thecornerstone of logistics. The technology offers a “shared ledger that isupdated and validated in real time with each network participant. It enablesequal visibility of activities and reveals where an asset is at any point intime, who owns it and what condition it’s in” (IBM, 2018). And so, blockchain reducesor eliminates fraud and errors; improves inventory management, minimizescourier costs, reduces delays from paperwork, identify issues faster andincrease consumer and partner trust. During the second supply chainsimulation, all the information regarding the orders from the client untilthe factory was provided in real time. And so, we calculated better the orders.
As a consequence, we did not experience anymore back orders and the inventorywas smaller. At the end of the week 30, all the total cost from the all supplychain were reduced by 50%. In the 1960s, the MIT Sloan school ofmanagement lists 6 main reasons of the bullwhip effect causes: disorganisationbetween the members of the supply chain by ordering the wrong number of productneeded because of a previous over or under reaction to the supply chain; deficitof communication between the members of the supply chain makes complicatedfor processes to function properly; free return policies can pushclients to exaggerate demands on purpose during shortages periods and thencancel when the surplus becomes adequate again; order batching that createvariability in the demand as there may for example be an increase in demand atsome stage followed by no demand after; price variations due to discountor cost changes can change regular buying patterns and cause uneven productionand distorted demand information; and demand information. In the real life, the bullwhip effectresults in excessive inventory investments, lost revenues, misguidedcapacity plans, ineffective transportation, missed production schedules, andpoor customer service (Lee and Billington, 1992) which result in highercosts and bad services (Soledad, 2017). In order to come with strategiesthat alleviate the bullwhip effect, it is fundamental that managers understandthe causes.
We experienced this during the firstsupply chain simulation. In fact, as the distributor of the beer brand, wecould only see the orders from the wholesaler, we had no information about thefactory distributor, the retailer and the client needs. For this reason, our strategywas poor as we tried to forecast with the precious orders to gauge the demand.
Keeping in mind that there was a delay of three weeks between ordering and receivingthe orders from the factory. However, this strategy wasn’t successful becausethere have been unpredictable changes from the wholesaler demand and thetotal cost started to increase while the goal of the exercise was to minimizecosts. At the beginning due to back orders and then due to largequantity of inventory.
From this experience, we learned that limitedcommunication, insufficient visibility and time leading lead to disorder inthe supply chain. A common issue in managing supplychain is the ‘Forrester effect’, commonly known as the ‘bullwhip effect’.It can be described “as an occurrence detected by the supply chain whereorders sent to the manufacturer and supplier create larger variance then thesales to the end customer. These irregular orders in the lower part of thesupply chain develop to be more distinct higher up in the supply chain. This variance can interrupt the smoothness of the supply chain processas each link in the supply chain will over or underestimate the product demandresulting in exaggerated fluctuations” (Adaptalif, 2012). Supplychain management consists on strategically managing flows of goods and services, along withrelationships within and among different departments to achieve better profits across:supporting enterprise strategic objectives; contributing to the achievement ofstrategic competitiveness of the enterprise; contributing to the enhancement ofthe competitive advantage of the companiesi; and enhancing customersatisfaction (SCMA, 2018).
Operations and supply chainmanagement