The Impact of Bullwhip on Supply Chain Management
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The terminology bullwhip effect was defined by Jay Forrester, a systems dynamics professor at the Massachusetts Institute of Technology (Brime, 2001). The concept explains the process of increased variability along a supply chain system.
Individual organisations in the supply chain have devised customised guidelines on forecasting, pricing, promotions and financial conditions. As a result, it often leads to volatility in demand which decreases the scope of the other trading associates in the supply chain to propose forecast demands. Additionally, such fluctuations propagate, with increased amplitude, upstream in the supply chain leading to the bullwhip effect (Muller, 2011).
How to Manage the Bullwhip Effect
Ivanov (2017) noted that many companies had taken steps to reduce the bullwhip impact by improving working capital efficiencies. He suggests that initiatives tend to be modifications of the same theme: sharing information and collaborating with supply-chain partners in real-time. For example, in the consumer products space in addition to using electronic data interchange (EDI) for order transmission, several firms have leveraged vendor-managed inventories (VMI). Here the supplier of the product monitors the retail stockpiles and replenishes the store on a need basis. The grocery industry has a similar strategy called efficient customer resp…
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