Bullwhip effect in supply chain management

Abstract

TO QUANTIFY THE BULLWHIP EFFECT(BWE) IN SUPPLY CHAIN MANAGEMENT(SCM) THROUGH GRAPHICAL TREATMENTS
A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request, or demand. The supply chain not only includes the manufacture and uppliers, but also transporters, warehouses, retailers, and finally the end consumers themselves The objective of every supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request. Supply chain management involves the management of flows of information, product, or funds between and among stages in a supply chain to maximize total supply chain profitability An important phenomenon in SCM, known as the bullwhip effect, which suggests that the demand variability increases as one moves up a supply chain. It is 1989 that Sterman first introduced regarding this effect. Since then, worldwide researches have been carried out by various authors to study different aspects of SCM, causing the bullwhip effect and suggested a number of methods to reduce its effect. The impact of the bullwhip effect is to increase Manufacturing cost, Inventory cost, Replenishment lead time, Transportation cost $ Labor cost for shipping and receiving, for building surplus capacity and holding surplus inventories. The impact of the bullwhip effect is also to decrease ‘Level of Product Availability’, since More run out of stocks in supply chain, and to decrease ‘Relationship Across the Supply Chain’, since each stage tends to blame other stages of the supply chain There are so many minor causes which gives rise to bullwhip effect. But, they can never be quantified through mathematical equations, however, can be controlled through effective managerial levers. Some of theses causes can be pointed out as below, • Lack of supply chain coordination • Lack of information sharing • Lack of trust among the members in SC • Lack of proper incentive scheme • Lack of proper trained sales forces………etc The major causes which increase in variability are projections of future demand expectations, which result in over-exaggerated responses to changes in demand. In 1997 Lee et al. identified five major causes of the bullwhip effect which was all the consequence of the rational behavior of the supply chain members: They are the use of • Demand Forecasting • Batch purchasing OR Ordering Lots • Replenishment lead times • Rationing & Supply Shortages • Price Fluctuations and Safety Stock The loss due to this can be quantified through mathematical equations, and can be controlled effectively, if the factors affecting the bullwhip effect are analyzed properly through proper method. All previous works were only limited on quantifying the bullwhip effect based on common methods of reducing its impact. However, with all these previous works, it is difficult to obtain graphical illustration of the bullwhip effect Our work differs from all previous works mainly because it shifts the focus of the well established and extensively researched order-up-to-level policy and instead looks at all the replenishment policies that are somewhat different. We want to introduce Z- Transfer function’s frequency response plot to study the graphical illustration for the occurrence of the bullwhip effect. However, there are some limitations to the method used. The choice of the replenishment policies is limited since they have to be inherently periodic review policies and have to satisfy the linearity condition As a result of our research finding, we have suggested the organizations always implementing well known order-up-to-level replenishment policy due to lowest associated fixed cost and variable cost, that it is not always advantageous to implement said policy. While, implementing the said policy, they should also consider the loss due to corresponding bullwhip effect. If the bullwhip reduction is going to incur more benefits than the higher inventory management cost, they should rather consider implementing some other replenishment policies than the said well known order-up-to-level replenishment policy. [math mode missing closing $]