2.1 Supply Chain Dynamics

Question 1

Impact of Bullwhip Effect on Supply Chain Performance

Answer 1

→ Profit of the SC decreases, as the higher (required) level of product availability causes costs to increase
→ (Growing) lack of communication between supplier and manufacturer

Question 2

Cause-Effect Relationships of Bullwhip Effect

Answer 2

→ Impact of the Bullwhip Effect:
Increase in demand fluctuations when each stage plans individually (sequential/uncoordinated planning)

Question 3

Incentive Obstacles - Local Optimization

Answer 3

Decisions are based on maximizing profits of only a single stage, without considering overall SC profits

Question 4

Incentive Obstacles - Sales Force Incentives

Answer 4

Incentive systems, which reward sell-in (quantity sold to distributers/retailers), not sell-through (quantity sold
to final customers), lead to order variability being larger than customer demand variability

Question 5

Information-Processing Obstacles

Answer 5

• Forecasting based on orders and not customer demand
• Lack of Information Sharing
  ▪ Short-term sales promotions can cause retailers to increases their order quantity
  ▪ Manufacturers may interpret this as a permanent increase in demand
  ▪ The lack of information results in a high inventory level

Question 6

Operational Obstacles - Ordering in Large Lots

Answer 6

Orders in large lots, e.g., due to high fixed costs or quantity discounts for the batch size

Question 7

Operational Obstacles - Large Replenishment Lead Times

Answer 7

If demand is overestimated (e.g., by a random increase), this translates into a higher forecast and order
quantity. This distortion is magnified if replenishment lead times between stages are long

Question 8

Operational Obstacles - Rationing and Shortage Gaming

Answer 8

▪ Where capacity is limited, production quantities are often allocated to retailers in proportion to their order quantities. This creates an incentive for retailers to increase their order quantity in order to receive more supply.
▪ The manufacturer could interpret this increase as an increase in demand, even though customer demands are unchanged

Question 9

Operational Obstacles - Example: Impact of ordering in large lots

Answer 9

→ By bundling the demand to larger lots, the variability increases

Question 10

Pricing Obstacles - Lot-Size-Based Quantity Discounts

Answer 10

Discounts based on lot size increase the lot size of orders, which in turn magnify the bullwhip effect.

Question 11

Pricing Obstacles - Price Fluctuations

Answer 11

Trade discounts (e.g., price promotions) by the manufacturer result in forward buying by retailers, which order large lots during the discounting period to cover future demand. The retailer only places very small orders after the promotion period.

Question 12

Pricing Obstacles - Example: Promotion (Price Reduction by Manufacturer)

Answer 12

→ During the promotion, order lot sizes increase. After the promotion they decrease to the normal level.
Therefore, variability increases.

Question 13

Behavioral Obstacles

Answer 13

• Local Points of View
• Different stages blame one another for fluctuations: SC members become enemies rather than partners
• No stage of the SC learns from its actions: The consequences from its actions only become visible in other SC stages.
• A lack of trust leads to opportunistic behavior- Information is not shared or ignored