A phenomenon in supply chain by which the rates of orders vary as they move from one echelon of a supply chain hierarchy to the other is referred to as the bullwhip effect (Rong, Shen & Snyder, 2008). The variability for demand accelerates as one move from a lower supply chain level to the upper one. This continual change in the customer demand over the different levels of supply chain causes the variation in the price and amount of orders which are placed in the higher hierarchy of the SC. As a result of these variations, an organization’s supply chain may suffer large oscillations and swings which will prompt the organization to start solving issues within its perspective. As a result of bullwhip effect, the industry can suffer consistent increase in cost and eventually leading to poor services and low quality production (Rong, Shen & Snyder, 2008).
Bullwhip is a major challenge that the retail industries undergo as a result of their inability to master and predict the supply chain network. As a result of bullwhip effect, retail industries encounter instances of sharp drops and spikes in the in the demands for various products. Sometimes the costumers go for the stork in the store and they fail to get the required stock; or there is too much product in the store that the customers do not demand for. These instance changes in demand causes poor prediction by the retailers hence resulting to surplus or deficits. The effect is caused by the differential forecasting and updating of the product supply chain by various members of the chain (Wong, 2006). The forecast they do is solely based on the demand by the other chain member in the immediate lower level; however, this should be based on the demand provided by the final consumers. This demonstrates that there is little coordination among the various levels of supply chain. Customers end up ordering more than they really need because they believe that the supply they will receive will be enough to take care of them during the periods when the supply is short. The members of the chain, on the other hand, are forced to add some levels of percentage accuracy to cub the instance of such fluctuations.
There are various strategies that have been put in place to countermeasure the effect of bullwhip. The most common strategy is targeting the order batching. The high cost associated by ordering can be counter measured by employing the Electronic Data Interchange (EDI) and Computer Aided Ordering (CAO). By the use of EDI and CAO, the process of ordering becomes more efficient and cheaper hence there are no extra costs. Another step to counter problems to do with order batching is by formulating regular appointments of product delivery. This step is taken to combat the issues of uncoordinated and random ordering. The entity however must ensure that they don’t order too often or too frequently; frequent ordering may lead to an increase or decrease in the required safety stock, while often ordering may lead to a situation in which an entity is unable to see the demand variance of its own (Haughton, 2009).
Another recommended countermeasure to the bullwhip effect can be aimed at countering the issue of shortage gaming. An entity can combat the problem of rationing schemes which sometimes tend to be proportional by ordering for units basing on the past sales. Every single level of the supply chain should also their capacity and information on supply by other members of the SC; this will solve the issue of ignorance and lack of information among the members. The order sizes should be flexible so that the issues of restricted order capacity do not occur. The data on point of sale (POS) should also be shared among the SC members; this will combat the instances where the demand lacks visibility (Faizan, & Haque, 2015). By implementing these recommendations, a supply chain entity and the entire supply chain members will be able to predict their demands, order for the required quantity hence reducing the costs associated with the bullwhip effects.
References
Faizan, R., & Haque, A. U. (2015). Bullwhip Effect Phenomenon and Mitigation in Logistic Firm's Supply Chain: Adaptive Approach by Transobrder Agency, Canada. International Journal of Supply Chain Management, 4(4).
Haughton, M. A. (2009). Distortional bullwhip effects on carriers. Transportation Research Part E: Logistics and Transportation Review, 45(1), 172-185.
Rong, Y., Shen, Z. J. M., & Snyder, L. V. (2008). The impact of ordering behavior on order-quantity variability: a study of forward and reverse bullwhip effects. Flexible services and manufacturing journal, 20(1-2), 95-124.
Wong, C. Y., El-Beheiry, M. M., Johansen, J., & Hvolby, H. H. (2006). The implications of information sharing on bullwhip effects in a toy supply chain. International Journal of Risk Assessment and Management, 7(1), 4-18.
