How lack of coordination creates bullwhip effect in the supply chain describe its effect on profit of a supply chain?
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Supply chain coordination improves if all stages of the chain take actions that are aligned and increase total supply Show
Chain surplus. Supply chain coordination requires each stage of the supply chain to share information and take into account the impact its actions have on other stages.A lack of coordination occurs either because different stages of the supply chain have objectives that conflict or because information moving between stages is delayed and distorted. Different stages of a supply chain may have conflicting objectives if each stage has a different owner. As a result, each stage tries to maximize its own profits, resulting in actions that often diminish total supply chain profits. Not only does each stage focus on its own objectives, but information is also often distorted as it moves across the supply chain because complete information is not shared between stages. This distortion is exaggerated by the fact that supply chains today produce a large variety of products. Ford produces different models, with several options for each model. The increased variety makes it difficult for Ford to coordinate information exchange with thousands of suppliers and dealers. The fundamental challenge today is for supply chains to achieve coordination in spite of multiple ownership and increased product variety. One outcome of the lack of supply chain coordination is the bullwhip effect, in which fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to supplier. The lack on performance of lack of Coordination The lack of coordination in a supply chain increases variability and hurts the supply chain surplus under various heads & impacts directly. Manufacturing cost Impact of the Lack of Coordination
Obstacles to Coordination in Supply Chain Any factor that leads to either local optimization by different stages of the supply chain or an increase in information delay, distortion, and variability within the supply chain is an obstacle to coordination. If managers in a supply chain are able to identify the key obstacles, they can then take suitable actions to help achieve coordination. We divide the major obstacles into five categories:
Managerial levers to achieve Coordination –
To sum up, managers can help achieve coordination in the supply chain by aligning goals and incentives across different functions and stages of supply chain. Other actions that mangers can take to achieve the coordination include sharing of sales information and collaborative forecasting & planning, implementation of single point of control of replenishment, improving operations to reduce lot sizes along with lead times. If you've never come across the bullwhip effect, consider yourself lucky. It can lead to issues meeting customer demand, chew through profits, and hurt your supplier relationship management efforts. Much of the problem comes from a lack of understanding of the way supply and demand affect your inventory control and inventory management process. Keep reading to learn more about the bullwhip effect, some causes, and how you can avoid or limit it. What Is Bullwhip Effect?The bullwhip effect is a phenomenon where demand changes at the end of a supply chain lead to inventory fluctuations along the chain. Generally, slight variations in demand at the customer or retailer level reverberate up the chain causing greater discrepancies. This in turn causes too many or not enough supplies as needed to be purchased at each level of the chain. These products often end up as dead stock, on backorder, or need to have their prices greatly cut to avoid total loss. Bullwhip Effect ExampleIf this all sounds a little confusing, let's break it down with a couple of examples. Let's say you are a food wholesaler who regularly sells 1,000 cans of tuna to a customer each week. Then, this customer orders double the amount of tuna they normally do. You assume that demand is increasing and purchase 2,000 cans to ensure you don't run out. Seeing your increased purchase, your supplier may also increase the amount of tuna they stock, thus further amplifying the issue. On the other end of the spectrum, you can run into issues with too little supply. Let's say, in the scenario above, you didn't increase how much tuna you purchase. However, the demand on the customer side continued to increase. Immediately you'd run into an issue meeting demand. You then place a larger order with your supplier who also can't meet the demand, leading to a scarcity in cans of tuna. Though these are greatly simplified examples, you can see how overreacting to demand fluctuations can cause problems throughout the supply chain. Luckily, BlueCart’s wholesale eCommerce platform is an all-in-one DTC and online marketplace that many food wholesalers use to avoid these issues. It comes with many great reporting tools that let you understand your sales trends and meet demand. Causes of Bullwhip EffectThere are a number of causes of the bullwhip effect in the supply chain. A lack of proper forecasting for customer demand shifts, delivery time, and inventory tracking are often major factors.  Here are the most common causes of the bullwhip effect: Issues with Lead TimeLead time is one of the most important aspects of inventory control and directly impacts your ability to meet customer demand. Calculating lead time and planning accordingly ensures you avoid losses and can fulfill orders. However, if there is an issue anywhere along the supply chain, lead time increases for each remaining step. This makes it difficult to meet customer demand and causes greater inventory level fluctuations. Lack of CommunicationOne of the most common causes of the bullwhip effect is a lack of communication both internally and along the supply chain. Sharing information regarding shifts in demand, issues with production, and upcoming sales are key in avoiding issues. This is particularly important if you're interested in what is 3pl or dropshipping for eCommerce fulfillment (see order fulfillment meaning). There, your ability to fill orders relies entirely on maintaining a good flow of information. Incorrect Demand ForecastsDemand forecasting is complicated and requires setting and analyzing a wide range of Inventory KPI and eCommerce KPIs. Any mistakes along the way can lead to an inaccurate forecast. This in turn leads to an inability to meet demand or too much sitting inventory. There are also many external factors that can cause your forecast to be incorrect. Regularly conducting an inventory audit and reviewing and updating your forecast is key. Too Many Discounts and PromotionsAnother issue that commonly causes the bullwhip effect is running too many promotions or overusing discounts. This is because they disrupt larger demand trends and cause trouble with forecasting. Suppliers become accustomed to fulfilling orders at a high rate and this can quickly become a problem when the sales end and seasonal trends return. If you regularly run into issues with excess inventory try kitting instead. It allows you to sell underperforming products by bundling them with better products. The markup is higher and you won’t impact the supply chain. How to Avoid Bullwhip EffectSince the bullwhip effect can cause so many problems with inventory control, learning how to minimize the bullwhip effect is key. Though there are some causes that can't be helped, you can limit the chance your business is the cause. Here are five steps you can take to minimize the bullwhip effect: Use Warehouse Inventory Management SoftwareProper inventory and order management go a long way to avoiding problems with the bullwhip effect. This is best done using software that can track inventory levels, product flows, and orders in real-time. They give you actionable data and provide detailed insight into your ability to meet demand. Even better, they can help you set par level, calculate optimal reorder points, and avoid wasting money on storing excess inventory. Limit Your Promotions and SalesMany businesses think that they should run promotions often to increase demand. This method of sales is dangerous in many ways and can easily cause losses for both the business and every step along the supply chain. Try to utilize sales periods only as necessary to meet customer expectations. Instead, focus on upselling and cross selling to increase your average order value and grow your sales in a sustainable way. Streamline the Supply ChainWhen your supply chain becomes congested with too many suppliers and moving parts, it becomes easier to make a mistake. Try to reduce your supply chain and streamline your order processes to ensure limit this risk. It also makes it much easier to maintain relationships and share information quickly. Improve Order PlanningThe unsung hero of inventory management is order planning. Accumulate as much data regarding inventory levels and demand trends to order the optimal amount of each product. You should also factor in any safety stock needed and any upcoming sales or seasonal demand shifts for inventory reduction. Using an ERP accounting system or demand planning software are great ways to optimize your order planning. SKU rationalization can also provide insight about which orders to prioritize. Optimize Your Minimum Order Quantity (MOQ)Setting a minimum order quantity is a good way to avoid shipping products at a loss. However, try to avoid complementing your MOQ with bulk discounts as this can attract customers who order more than you can handle. It can cause a lot of strife for your order fulfillment team and cause dramatic shifts in your inventory levels. Bullwhip Your Inventory Into ShapeThe bullwhip effect is an unfortunate effect of poor supply chain management and demand forecasting. By following our tips above and staying on top of trends, you can avoid causing trouble. Frequently Asked Questions About the Bullwhip Effect In Supply ChainThe longer you work in a physical products business, the more likely you are to hear about the bullwhip effect. To fully grasp the bullwhip effect, it helps to learn from common questions people ask. Check out our answers below: Why is the bullwhip effect bad?The bullwhip effect is bad because small changes anywhere along the supply chain can lead to massive disparities at any stage. For example, if a retailer experiences two or three times the demand from customers but doesn’t order more product right away, they are delaying backorders, which places more pressure on suppliers later. Where does the bullwhip effect have its greatest impact?Though the bullwhip effect can negatively impact any stage of the supply chain, it most often has the greatest impact on raw material suppliers. Raw goods providers supply materials to wholesalers and manufacturers, who are responsible for getting products to distributors, retailers, and consumers. When demand fluctuates at the consumer level, it reverberates up the supply chain, placing greater pressure on entities involved in the production and dissemination of a good. This may force a supplier to produce a much greater or lesser amount of product, which complicates their workflow and delivery. Who invented bullwhip effect?Jay Forrester is credited as the person who invented the term “bullwhip effect.” Forrester was a leading American computer engineer and systems analyst who was well-known for his invention of magnetic core computer memory. He became an MIT lecturer in 1956 and began presenting his concepts on supply chain management in 1961. Forrester started calling supply chain demand fluctuations the bullwhip effect and has been credited with it ever since. How to avoid bullwhip effect?To avoid the bullwhip effect, you have to:
Streamline order management, grow your bottom line, and get back hours of your time with BlueCart. Book a demo now! What is the impact of lack of coordination?A lack of coordination in an organization can decrease productivity, complicate processes and delay the completion of tasks. In order to coordinate the efforts of an entire organization, the organization requires a systematic integration of a process that creates accountability within the organization.
What are supply chain coordination and the bullwhip effect and what are their effects on supply chain performance?A lack of coordination creates "bullwhip effect" in the supply chain. Due to this effect, fluctuations in sales become larger and larger fluctuations in orders at higher stages in the supply chain. This leads to situations wherein large shortages or large surplus capacities are felt in the supply chain cyclically.
What are the major reasons for lack of coordination in a supply chain How are the obstacles to supply chain coordination classified?What are the Effects of Lack of Coordination on Supply Chain. Manufacturing Cost. The bullwhip effect increases manufacturing costs in the supply chain. ... . Inventory Cost. ... . Replenishment Lead Time. ... . Transportation Cost. ... . Labour Cost for Shipping and Reciving. ... . Level of Product Availability. ... . Relationship Across the Supply Chain.. Why lack of supply chain coordination occurs?A lack of coordination occurs either because different stages of the supply chain have objectives that conflict or because information moving between stages is delayed and distorted. Different stages of a supply chain may have conflicting objectives if each stage has a different owner.
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