A well explained presentation on one of the major Supply Chain challenges, The Bull-Whip Effect, outlining the major causes as well as the methods of coping with the Bull-Whip Effect.

1. THE BULL-WHIP
EFFECT EXPLAINED

2. QUESTIONS :
a) WHAT IS THE BULL-WHIP EFFECT AND EXPLAIN
ITS IMPACT.
b) WHAT ARE THE METHODS OF COPING THE
BULL-WHIP EFFECT

3. THE BULL-WHIP EFFECT
The bullwhip effect is the uncertainty caused from
distorted information flowing up and down the supply
chain.

5. CAUSES OF THE BULL-WHIP EFFECT
Demand forecast updating
Order batching
Price fluctuation
Rationing and shortage gaming
Un-forecasted sales promotions
Customers turning back sales orders

6. EFFECTS OF THE BULL-WHIP EFFECT
Excess inventories
Unnecessary costs
Tense supplier relationships
Stock outs
Increased wastages
Changes in buying patterns

7. SUPPLY CHAIN IN EQUILIBRIUM
Customer demand forecast = 10 units
miller baker retailer consumer
Products &
Services
Products &
Services
Products &
Services
Information
Cash
Key: = Inventory Levels
10 Units 10 Units 10 Units
10 Units 10 Units 10 Units
Retailers are selling product at a constant rate and price. Firms along the
supply chain are able to set their inventory to meet demand.

8. SUPPLY CHAIN DISRUPTED
Customer Demand forecast = 20 units
miller
baker
retailer
consumer
Products &
Services
Products &
Services
Products &
Services
Information Flow
Cash Flow
Key: = Inventory Levels
160 Units 80 Units 40 Units
80 Units 40 Units 20 Units
As demand increases, the retailer decides to accommodate the forecasted demand and increase inventory
to buffer against unforeseen problems in demand. Each step along the supply chain increases their
inventory to accommodate demand fluctuations. The top of the supply chain receives the harshest impact
of the whip effect.

9. METHODS OF COPING WITH THE
BULL-WHIP EFFECT
Improve communication along the supply chain
Improve sources of forecast data
Share Information
establish a demand-driven supply chain which reacts to actual customer orders
Break order batches
Stabilize prices
Eliminate gaming in shortage situations

10. IMPROVE COMMUNICATION ALONG
THE SUPPLY CHAIN
• Retailers notifying firms upstream of sales promotions will help clarify demand signals
from consumers
• Improved information will improve demand forecasts upstream in the supply chain

11. IMPROVE SOURCES OF FORECAST
DATA
• Firms can use data from Point of Sale computer systems to derive data from
forecasting
• Firms along the supply chain can use EDI systems to retrieve data on items
that are legitimately being purchased by customers

12. SHARE INFORMATION
• Lack of visibility = rise in costs. Encourage information sharing among your
partners. Be a catalyst and good example of information sharing. Work with
suppliers on releasing lead times and improving on time delivery.

13. ESTABLISH A DEMAND-DRIVEN SUPPLY CHAIN
WHICH REACTS TO ACTUAL CUSTOMER
ORDERS
• In manufacturing, this concept is called kanban. This model has been successfully
implemented in Wal-Mart's distribution system. Individual Wal-Mart stores transmit
point-of-sale (POS) data from the cash register back to corporate headquarters several
times a day. This demand information is used to queue shipments from the Wal-Mart
distribution centre to the store and from the supplier to the Wal-Mart distribution
centre. The result is near-perfect visibility of customer demand and inventory
movement throughout the supply chain. Better information leads to better inventory
positioning and lower costs throughout the supply chain.

14. BREAK ORDER BATCHES
• Use EDI Exchange to reduce the cost of placing orders. Place orders more
frequently. Ship assortments of products in a shipload to counter high
transportation costs or use a third party logistics company to handle
shipping.

15. STABILIZE PRICES
• Manufacturers reduce the frequency and level of wholesale price discounting to keep
customers from stockpiling
• Work to develop consistent pricing of products to avoid demand fluctuations from the
sale of inexpensive products.

16. ELIMINATE GAMING IN SHORTAGE
SITUATIONS
• Suppliers should allocate products based on past sales numbers.
• Eliminate return policies so retailers can't cancel orders.

17. Thank you..!!
The end