Managing The Bull Whip Effect

869 WordsDec 16, 20154 Pages
Managing the Bull Whip Effect 1) Define and describe the bull whip effects. a) The Definition of Bull Whip on the supply chain occurs when changes in consumers demand causes the companies in a supply chain, starting with the retailer, wholesalers, distributor, manufacturer and then the raw material supplier. This effect can be observe through most supply chains across several industries; it occurs because the demand for goods is based on demand forcasts from companies, rather than actual consumer demand The complex group of companies that move goods from raw materials suppliers to finished goods retailers. These companies work together when meeting consumer demand for a product; supply chains allow companies to focus on their specific processes to maintain maximum profitability. However supply chains may stumble when market conditions change and consumers demand shifts Behavioral Causes One cause of the Bullwhip effect is normally driven by management behavior at the front –end companies of the supply chain. Retail management never wants to have a stock-out on a popular good, leading to higher orders from wholesalers. This eventually squeezes each company in the supply and creates decreases in inventory Another major behavioral effect is the ordering of too much inventory when consumer demands as fallen for an item. Retailers may have raised their levels to avoid a stock-out but are now met with goods that cannot be sold quickly. This creates overstock of inventory

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