Value of information Flashcards
What are the benefits of information in the supply chain?
- Reduces variability in SC
- Suppliers make better forecasting
- Enables collaboration of manufacturing and distribution systems and strategy
- Retailers
- Provide better customer service by locating desired product
- Reacts & adapts to SC problem more rapidly
- –Lead-time reduction
What is the simple definition of The Bullwhip Effect?
–Demand variability increases as we move away from market and towards suppliers
What are the three levels illustrated in the bullwhip effect?
- Single Retailer
- Single Wholesaler
- Single Factory
Explain the ordering from the view of the wholesaler
–Wholesaler receives order from retailer.
–Wholesaler doesn’t have access to consumer data.
–Wholesaler’s forecast is based on the order received from retailer.
–Wholesaler places order to factory based on above forecast.
How and why (not) do the volumes of the retailers orders to the wholesaler differ from the actual consumer demand?
And how does it looK?
Why?
- Batch orders
- Fixed elements of order cost (k)
- Economies of Scale (Transportation)
What is the problem of not having real consumer demand information?
- Variability in retailer’s orders > Variability in consumer demand.
- -> Because of variability, wholesaler should carry higher safety stock to maintain Same Service Level
From the factory level, how does the ordering look then?
And why?
Why?
- Batch orders
- Fixed elements of order cost (k)
- Economies of Scale (Transportation)
How is the relationship between participant level (retailer, wholesaler, factory) and safety stock?
- To Maintain Same Service Level
- SC participants in upper level should carry more safety stock (capacity)
What are the five causes of the Bullwhip effect?
- Demand Forecasting
- Lead time
- Batch ordering: Min-max (S, s) inventory policy
- Price fluctuation
- Inflated order
Explain how demand forecasting is a cause of the bullwhip effect
- Min-max inventory policy
- Whenever inventory is less than ‘re-order point’, it raises inventory to ‘order-up-to-level’.
- More data => More estimates (AVG and STD of demand)
- ‘Re-order point and order-up-to-level constantly updated => increasing variability
- Also, if wholesalers and manufacturers don’t have the actual demand data they need to use “orders” as a proxy to the real demand=> increasing variability
Explain how demand Lead-time is a cause of the bullwhip effect
- Increase in variability can be magnified with increasing lead-time.
- Thus, with longer lead time, a small change in demand variability (STD) can increase
- Re-order point
- Safety stock
- => Significant change in order quantity!!
- Increase in variability
- Thus, with longer lead time, a small change in demand variability (STD) can increase
Explain how demand Batch ordering is a cause of the bullwhip effect
- Batch ordering: Min-max (S, s) inventory policy
- Retailer uses batch ordering
- Wholesaler observes
- Large order
- Long period of no order
- Distorted & highly variable order pattern
- Retailer uses batch ordering
Explain how demand Price fluctuation is a cause of the bullwhip effect
– Price fluctuation => Retailers ‘Stock Up’ when low price. Also ‘Promotion’, ‘Discount’.
Explain how demand Inflated orders is a cause of the bullwhip effect
- Inflated order
- Retailer places inflated order in shortage time => magnifies bullwhip effect
- (to get higher priority and security)
- Retailer places inflated order in shortage time => magnifies bullwhip effect
How to cope with the bullwhip effect?
- Reducing uncertainty (Very effective)
- Reducing variability
- Lead time reduction
- Strategic partnership