Intended learning outcomes: Explain the bullwhip effect. Identify the point of sale (POS) and the quick response program (QRP).
Continuation from previous subsection (2.3.5).
It is very important in supply chain management to implement countermeasures to prevent the bullwhip effect (also called the Forrester effect).
The bullwhip effect is an extreme change in the supply position upstream generated by a small change or no change in customer demand. Inventory can shift quickly from being highly backordered to being excess.
Observations show that the variation of inventory and order quantities increases up the supply chain from customers to the various tiers of suppliers. In addition, the longer the lead times of goods, data, and control flow, the stronger the bullwhip effect. See [Forr58], [LePa97], and [SiKa07]. Figure 2.3.5.2 shows this effect.
A famous example, analyzed and published by Procter & Gamble, is demand for Pampers® disposable diapers. The bullwhip effect is caused mainly by information processing obstacles in the supply chain; the obstacles are information time lag and distortion (by the actual orders). A countermeasure is adapting manufacturing lead times (see [SöLö03]), based on rapid information exchange on consumption, or demand, by point-of-sale scanning.
Fig. 2.3.5.2 Open order quantities and inventories / backorders in a supply chain: the bullwhip effect (or Forrester effect).
Point of sale (POS) is the relief of inventory and computation of sales data at the time and place of sale, generally through the use of bar coding or magnetic media and equipment ([ASCM22]).
In distribution control, the term quick response program (QRP) stands for an information system that links retail sales along with the production and shipping schedules back through the distribution chain. At the point of sale, it employs electronic scanning and data transfer. It may use direct shipment from a factory to a retailer.
This type of information system can transmit information on demand from end user back to the highest tier in the supply chain. All partners in the network can rapidly adapt their capacities to current demand and thus avoid large fluctuations in inventory. Experience has shown that this type of information is exchanged only in networks characterized by complete trust.
Quiz on Chapter 2.3.5. not yet available
The Bullwhip Effect[kml_flashembed movie="https://opess.ethz.ch/wp-content/uploads/elements/Quiz_2_3_4.swf" height="75%" width="100%" /]
Course section 2.3: Subsections and their intended learning outcomes
2.3 Designing a Strategic Partnership Relationship
Intended learning outcomes: Present target area strategies for intensive cooperation. Explain the Advanced Logistics Partnership (ALP) model with concepts such as building trust, working out collaborative processes in the supply chain, avoiding the bullwhip effect. Describe the virtual enterprise and other forms of coordination among companies.
2.3.1 Target Area Strategies for Intensive Cooperation
Intended learning outcomes: Produce an overview on the social competency of a company. Present target area strategies for an intensive cooperation in the partnership relationship, describe tasks and investment areas, and disclose possible supply chain risks entailed.
2.3.2 The Advanced Logistics Partnership (ALP) Model, a Framework for Implementation of Intensive Cooperation in the Supply Chain
Intended learning outcomes: Produce an overview on the ALP model: a framework for implementation of an intensive cooperation in the supply chain.
2.3.3 Top Management Level: Building Trust and Establishing Principal Relationships
Intended learning outcomes: Present trust-building measures in partnership relationships. Disclose the reasons for (1) creating the required conditions in your own company first, (2) – where possible – placing emphasis on local networks (local sourcing), and (3) not exploiting strengths in your company’s negotiating position.
2.3.4 Middle Management Level: Working Out Collaborative Processes in the Supply Chain
Intended learning outcomes: Present cooperative processes in the supply chain. Produce an overview on Collaborative processes in participative design/engineering. Describe contract issues for a partnership relationship.
2.3.5 Operational Management Level: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Intended learning outcomes: Produce an overview on collaborative planning, forecasting, and replenishment (CPFR). Describe vendor-managed inventory (VMI) and continuous replenishment planning (CRP). Identify planning & control tasks for a partnership relationship.
2.3.5b Avoiding the Bullwhip Effect (Forrester Effect)
Intended learning outcomes: Explain the bullwhip effect. Identify the point of sale (POS) and the quick response program (QRP).
2.3.6 Managing a Strategic Partnership Relationship — A Practical Application
Intended learning outcomes: Present the ALP phases in the case of a high-tech Swiss machine tool manufacturer with a world market presence who wanted to introduce an intensive partnership relationship with suppliers of important assemblies.
2.3.7 The Virtual Enterprise and Other Forms of Coordination among Companies
Intended learning outcomes: Produce an overview on the virtual enterprise and underlying long-term network of potential partners. Present target area strategies for a virtual enterprise and disclose possible supply chain risks entailed. Describe some other forms of cooperation in relation to the virtual enterprise.
