Essay on Bullwhip Effects

In the supply chain management, they are numerous stages and key factors such as time and supply of order choices, lack of communication and disorganization and demand of supply among others that can result in common problems in supply chain management. The problem is known as bullwhip effect, demand amplification or whiplash effect. The bullwhip effect refers to an occurrence in the supply chain where orders sent to the manufacturer and suppliers creates larger variance than the sales to the end customer (Stadtler, 2015). In this case, the difference can interrupt the smoothness of the supply chain leading to either over or underestimation of the product demand and eventually exaggerated fluctuations. Therefore, the distortion in the supply chain occurs when manufacturers and suppliers up the supply based on forecasted consumers demand rather than their actual wants.

By taking into consideration the operation of multiple companies in a serial supply chain where each of them orders from the immediate neighbor, a small change in demand from customers in one of the firm will lead to transmission of significant variation in the upstream. The bullwhip effect focuses on the behavioral and operational causes such as order batching, price fluctuation, rationing and shortage gaming and demand signal processing. For example, a successful sales promotion by retailers can reverberate up the supply chain to disrupt the manufacturers production, inventory, and supply ordering. Therefore, to have stability in the supply chain, the management ought to have counter measures to face some of these changes.

Among the measures to embrace is collaboration among the supply chain members. It involves transforming suboptimal solutions into full resolutions through sharing operational and customer information (Wisner, Tan, & Leong, 2014). In this case, an individual member will order independently but will exchange relevant demand information to align their forecasts for long-term planning. Also, having everyday low price policy will help to solve issues caused by price fluctuation due to price and quantity discounts, promotions, and coupons. Lastly, to deal with rationing and shortage gambling by suppliers or customers which might send an inappropriate signal to manufacturers, there is need to formulate more stringent cancellation policies. Also, supplying orders to retailers based on their previous sales records rather than the proportion they order would help solve some of the exaggeration caused retailers needs.

Metcalfes Law

The Metcalfes law outlines that the power of a network grows approximately by the square of connected nodes. The law explains the information revolution and the extent it will rival or surpass the industrial revolution in scope and scale (Magnusson & Nilsson, 2017). For instance, a network with ten electrical terminals is not just powerful than a single unconnected node but it a hundred times stronger. In supply chain management the exchange of goods, services, and significant information among ever larger groups yields more than linear growth. For example, the value of telephone would be limited if only a small number of businesses are connected. Therefore, as more elements of the supply chain are integrated with systems such as electric supply chain collaboration (ESCC) technology, the value of the systems increases more than when linearly connection.

According to Metcalfes law supply chain managers should develop and integrate with other firms through systems which will help them access the demands of their products from different suppliers (Madureira, et.al 2013). For example, through developing a system for tracking, updating and sharing essential information related to a supply chain, this would create a correspondent delivery order mechanism where purchase order can be generated. In this case, the corresponding delivery order may be configured to have some attributes allowing users to monitor, update and control access to the market information. As a result, the supply chain managers will manage sources of turbulence and demand instability without huge inventories as essential information affecting their strategies are readily available in the network.

Reference

Madureira, A., den Hartog, F., Bouwman, H., & Baken, N. (2013). Empirical endorsement of Metcalfes law: How Internet usage outlines have changed over time. Information Economics and Policy, 25(4), 246-256.

Magnusson, J., & Nilsson, A. (2017). Enterprise Systems and Supply Chains. In Optimization and Decision Support Systems for Supply Chains (pp. 13-23). Springer International Publishing.

Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: A balanced approach. Cen Gage Learning.