Why are larger supply chains more difficult to manage?
The problem turns out to be one of coordination. Suppliers, manufacturers, sales people, and customers have their own, often incomplete, understanding of what real demand is. Each group has control over only a part of the supply chain, but each group can influence the entire chain by ordering too much or too little.
Further, each group is influenced by decisions that others are making. Decisions made by groups along the supply actually worsen shortages and overstocks. The bullwhip effect is illustrated by a story Prof.
Lee tells about how Volvo found itself with extra inventories of green cars.
Production, unaware of the promotion, saw the increase in sales and ramped up production of green cars. So they ask for to get Even in supply chains where communication is perfect, manufacturing and procurement delays can wreak havoc.
The simulation is run as a board game in teams playing the roles of retailers, wholesalers, distributors, and brewers of beer. As the backlog for orders increase, players order too much inventory, forcing their teammates into severe backlogs further down the supply chain.
The game can be emotionally intense. Many players report feelings of frustration and helplessness. Many blame their teammates for their problems; occasionally heated arguments break out. It also teaches one extra lesson not in the original game: Customers are ordering ten cases of beer each week, you have ten cases in inventory, ten cases are brewing, and ten cases worth of raw materials are arriving from your vendors.
In week two, demand increases to fifteen cases per week and remains at fifteen cases for the remainder of the simulation. The game ends when you manage to get your supply chain back in equilibrium for fifteen cases of beer. Try it out and see how many weeks it takes you. See if you can bring the supply chain back into equilibrium without the bullwhip oscillations of stock-outs followed by over-supply.
How to Reduce the Bullwhip Effect One way to reduce the bullwhip effect is through better information, either in the form of improved communication along the supply chain or presumably better forecasts. Because managers realize that end-user demand is more predictable than the demand experienced by factories, they attempt to ignore signals being sent through the supply chain and instead focus on the end-user demand.
This approach ignores day-to-day fluctuations in favor of running level. Another solution is to reduce or eliminate the delays along the supply chain. In addition to savings from reduced inventory carry costs, operating costs also decline because less capacity is needed to handle extreme demand fluctuations.
In addition to cycle time reductions throughout the supply chain, Hau Lee, V. Padmanabhan, and Seungjin Whang recommend the following actions to reduce the supply chain management bullwhip effect: Focus on end-user demand through point-of-sale POS data collection, electronic data interchange EDIand vendor-managed inventories VMI to reduce distortions in downstream communication.
Work with vendors to create smaller order increments and reduce order batching. Order batching exacerbates demand fluctuations. Maintain stable prices for products.3. Supply chains in different industries use radically different models. The supply chain of a major electronics manufacturer is very different from the supply chain of an apparel/footwear company.
They have very different drivers, business models and business rules. It is difficult to manage supply chains due to uncertainties in demand and potential delays in supply and deliveries. To overcome supply chain problems companies use inventories.
Inventories can be expensive. Why are larger Supply Chains more difficult to manage? It is very difficult to manage larger supply chains. The reasons are listed below: • It involves thousands of suppliers, manufacturing facilities and markets.
• Even the slightest of changes at any part of the supply chain has significant effects on all of the other participants. Supply chain collaboration is a hot topic today—and no wonder: companies that collaborate effectively across the supply chain have enjoyed dramatic reductions in inventories and costs, together with improvements in speed, service levels, and customer satisfaction.
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Kamesh Pemmaraju, VP of Product Marketing Mirantis Logistics and supply chains are .