What are five ways to minimize the bullwhip effect in supply chains?

Question

What will be an ideal response?

Answer 1

The authors provide nine ways, listed below.

Strategic alignment—once an appropriate design is determined for the supply chain, make sure that all partners adhere to competitive priorities that are consistent with its strategic thrust. Misalignment of priorities, goals, and objectives can cause delays or disruptions in flows in a supply chain. Internal business functions should similarly be aligned.

Upstream/downstream supply chain integration—working closely with customers and suppliers in CDP and the new service or product design collaboration process improves information flows and reduces surprises from demand spikes due to promotions or supply hang-ups because of poorly designed services or products. The integration should extend as far upstream in the supply chain as possible, beyond first and second-tier suppliers.

Visibility—one source of dynamics in supply chains is the lack of visibility of end-user demand by suppliers upstream in the supply chain. To facilitate planning at all levels in the supply chain, point- of-sale (POS) data, which records actual customer purchases of the final service or product, can be shared with all suppliers. RFID can also be used to track quantities of inventory throughout the supply chain.
Many firms have outsourced their customer service processes, particularly if the service can be transacted over the phone.

Flexibility and redundancy—develop the right level of flexibility and redundancy across the supply chain to be able to absorb disruptions and adapt to change. Seek dual sources of critical materials and components, build in adequate capacity cushions, and adjust safety stocks and inventory levels to maintain desired flows.

Short replenishment lead times—improving internal processes and working with suppliers to reduce lead times allows the firm to react quickly to a change in demand levels, thereby mitigating the bullwhip effect. In addition, shorter lead times leads to smaller pipeline inventories.

Small order lot sizes—working on ways to reduce the costs associated with ordering, transporting and receiving inventory throughout the supply chain will reduce order lot sizes and thereby decrease the amount of fluctuation in the size of orders in the supply chain.

Rationing short supplies—when a shortage exists, customers sometimes artificially inflate their orders to protect themselves, only to cancel them later when the shortage is relieved. To counteract this behavior, suppliers can ration short supplies to customers on the basis of their past sales, rather than their current orders.

Everyday low pricing (EDLP)—promotional or discount pricing encourages spikes in demand. Using a stable pricing program such as EDLP, as is done by Walmart, discourages customers from buying excess stock at discounted prices so they can offer price promotions, a practice called forward buying. EDLP levels the demand spikes that are driven by price fluctuations.

Cooperation and trustworthiness—being cooperative in solving supply issues and providing information that can be trusted serves to reduce costs for all members of the supply chain and mitigates the deleterious effects of supply chain dynamics.