The paper 'The Bullwhip Effect " is a great example of business coursework. The bullwhip effect is a phenomenon that is used in the distribution channel. The effect is affected by changes in the consumer demands that lead to swings in the inventory due to the changes caused. The bullwhip effect was advanced by Forrester Jay in 1961 in his book industrial dynamics thus it's popularly known as the Forrester effect. A bullwhip effect is a form of supply chain management that tries to explain the reasons that lead to the fluctuations of inventory across the supply chain even when the demands from the customers are constant.
Inefficiencies in the supply chain are usually evident as a result of the bullwhip effect. While research continues to be done to identify solutions to the bullwhip effect, the role played by human behaviour has been overlooked. The changes in demand in the market for products and services usually lead to variations in capacity usage. After the discovery of the bullwhip effects, the idea of supply management was effected that was aimed at ensuring the provision of high quality and relevant information that will ensure that the suppliers provide their customers with an uninterrupted flow of materials and products.
However, Forrester identified that the demand for most commodities in the market is usually oscillating and this may end up creating havoc in the supply chain when the suppliers start experiencing problems such as stock-outs. In most cases, the major drivers of the changes in demand are not only customers but also promotions, policies, processes, suppliers and systems put in place to manage both the demand and the supply of commodities. The bullwhip effect is a major reason for the negative performances that businesses have and is often the reason for excess inventories, higher raw materials purchase and storage costs, quality issues and overtime expenses.
In worse scenarios of the bullwhip effect, businesses are likely to lose out through lower sales reports, reduced quality of customer services and increase in costs. The bullwhip effect also forces businesses to increase their lead time thus the optimal batch order quantity is not used by the business. Worksheet analysis The worksheet provides for the beer game simulation provides a perfect example of the bullwhip effect.
It reports the weekly demand and supply curves for a product for a twelve-week period. It identifies the variations in the demand for the consumer thus bringing shortages in the market that lead to the bullwhip effect. When the consumer makes an order in the first week the retailer is forced also to make an order to the wholesaler to account for the shortage and to replenish its minimum stock and avoid stock-outs. The total consumer orders were 106 whereas the retailer had a shortage of 13.
The total orders that the retailer made to the wholesaler were119 but the wholesaler had a deficit of 23 still forcing the wholesaler to make an order to the distributor to replenish the stock. The wholesaler made an order of 103 to the distributor. To replenish their stock, the distributor made an order to the manufacturer of 116 yet the manufacturer had a shortage of 8 and was forced to make an order to the supplier of 119. The unpredictable changes in consumer demand forced the retailer to run out of stock.
In anticipation of an increase in demand, the retailer made an exaggerated order for more stock that forced the same sequence to occur up the ladder from the wholesaler to the distributor then to the manufacturer and finally to the supplier.
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