Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

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).

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 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.        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="" height="75%" width="100%" /]

Course section 2.3: Subsections and their intended learning outcomes

  • 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.