The bullwhip effect is one of the most well-known supply chain concepts. Proctor & Gamble (P&G) coined the term when studying the demand fluctuations for Pampers, their disposable diapers. Despite the fact that babies use diapers at a very predictable rate and therefore retail demand is flat, P&G observed that this product created a wave of changes up the supply chain due to very minor changes in demand.
Illustrated below are seven ways to cope with the bullwhip effect. When the bullwhip effect occurs in your supply chain, how do you handle it?
1. Focus on the customer
Optimal network design centered around your customer. Segment your supply chain based on your value proposition.
2. Define the right push-pull boundaries and strategy
Optimize your inventory allocation based on demand certainty. Stable demand = push strategy. Demand uncertainty = pull strategy. Often you will be somewhere in the middle with a push-pull strategy.
3. 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.
4. Manage Your Product Portfolio
Complexity management = thorough evaluation of the products in your portfolio. Make a joint agreement with product development, product management, marketing, ops, and finance on the criteria and guidelines for a New Product Introduction (NPI).
5. 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.
6. Stabilize prices
Manufacturers reduce the frequency and level of wholesale price discounting to keep customers from stockpiling.
7. Eliminate gaming in shortage situations
Suppliers should allocate products based on past sales numbers. Eliminate return policies so retailers can’t cancel orders.
For the full infographic, please visit OPS Rules Blog.
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