Supply Chain

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1 Components of Supply Chain Management (SCM)

The main elements of a supply chain include purchasing, operations, distribution, and integration. The supply chain begins with purchasing. Purchasing managers or buyers are typically responsible for determining which products their company will sell, sourcing product suppliers and vendors, and procuring products from vendors at prices and terms that meets profitability goals.

Supply chain operations focus on demand planning, forecasting, and inventory management. Forecasts estimate customer demand for a particular product during a specific period of time based on historical data, external drivers such as upcoming sales and promotions, and any changes in trends or competition. Using
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Production and supply issues then impact the consumer end of the supply chain and the effects ripple up and down the chain. This is often referred to as the bullwhip effect.

1 What Causes the Bullwhip Effect?

Supply chain management is a complex process. There are several issues that can lead to the bullwhip effect and those issues can be exacerbated by delays in transmitting information, and a lack of coordination up and down the supply chain. Some causes of the bullwhip effect include:
Consumer demand swings

Natural disasters that disrupt the flow of goods and services

Overcompensation when addressing inventory issues

Ordering processes, such as order batching, can also contribute to thebullwhip effect. Organizations may accumulate larger orders before processing them in an effort to reduce costs and create transportation economics. They may also wait to place larger orders to benefit from lower prices offered during a promotion. Demand forecasting manipulation is another cause. By padding the forecast to compensate for possible errors, the organization loses sight of true customer demand.
Customers can also contribute to the bullwhip effect by engaging in shortage gaming during periods of short supply by purchasing more than they need. Additionally, customers taking advantage of liberal return policies can create problems with developing accurate demand forecasts.

2 How to Minimize the Bullwhip Effect

The first step in minimizing the

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