Final exam Flashcards
Supply chain risks derive from different flows:
Material flows
Financial flows
Information flows
Material flows
▪ Supply
▪ Demand
▪ Production
Supply chains are subject to macro-risks
o Natural risks
o Law and Cultural risks
Supply chain risks (image)
Risks can be classified in two ways from the perspective of
impact severity and frequency
These risks can be classified in two ways from the perspective of impact severity and frequency
Operational risks
Disruption risks
Operational risks
(a.k.a. low-impact, high frequency) → they cause the bullwhip effect
Disruption risks
(a.k.a. high-impact, low-frequency) → they cause the ripple effect
Operational risks and distribution risks (image)
Operational risks are recurrent risks that come
from within the supply chain itself
Operational risks are recurrent risks that come from within the supply
chain itself
- Related to business processes (uncertainty of supply and demand)
- Often involve the bullwhip effect
- Impact operational parameters (e.g. lead time and inventory)
- Require time-efficient coordination to balance demand and supply
- Prevention steps: improving flow of information along the value chain
bullwhip effect
The bullwhip effect occurs when small fluctuations in retail demand cause fluctuations in wholesale, distributor and manufacturer demand, resulting in inefficiency and disorganization throughout the supply chain.
„Bullwhip“ efektas atsiranda, kai nedideli mažmeninės paklausos svyravimai sukelia didmeninės prekybos, platintojų ir gamintojų paklausos svyravimus, dėl kurių visoje tiekimo grandinėje atsiranda neefektyvumas ir netvarka.
BULLWHIP EFFECT (image)
As a result of the bullwhip effect:
Higher manufacturing costs
Higher inventory costs
Higher replenishment lead times
Higher transportation costs
Higher labor costs for shipping and receiving
Lower level of product availability
Lower profitability
Worse relationships across the supply chain
Results of bullwhip effect in an image
There are four main factors contributing to the increase in variability (i.e. bullwhip effect):
- Demand forecasting
- Lead time
- Batch ordering
- Price fluctuations
RECAP on reasons for batch orders:
o Minimize sum holding and ordering costs (EOQ)
o Leveraging discounts (transportation discounts to exploit FTL policy)
Variance amplification ratio
How to measure the bullwhip effect – example
How to measure the bullwhip effect – effect of Forecasting and Lead Time
Disruptive risks are
exceptional risks (rare occurrence and high performance impact)
ripple effect
Ripple effect describes the impact of a disruption propagation on supply chain performance and disruption-based scope of changes in supply chain structural design and planning parameters.
Disruptions have consequences in terms of
- Loss of productivity
- Decrease in customer service
- Loss of revenue
Ripple effect vs. Bullwhip effect