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Think, somebody must have put the petrol into the tank for you to pump from.
The supply chain for Petrol is indeed quite reliable, so much so that most consumers take it for granted
A) B)
Somebody must have prospected for oil, found it, and then dug the well to extract it. Next, somebody must have shipped the oil to a refinery, converted it into Petrol , and then transported the it to your favorite petrol station.
Order Size
Customer Demand
Time
Order Size
Time
Order Size
Time
Distributor Orders
Order Size
Time
Bullwhip Effect
The bullwhip effect is a phenomenon observed in supply chains wherein the demand variability increases as one moves upstream from retailers to distributors to manufacturers
Bullwhip Effect
In 2001, Cisco was forced to write down $2.2 billion worth of obsolete inventory, due to uncertain variations in its demand in its supply chain.
Impacts of Bullwhip
It distorts the order information & amplifies order variability.
Example continued
Retailers fail to notify manufacturers of sales promotion Company X recognizes that demand for SOAPS have increased. Company X increases inventory to allow for increased manufacturing of SOAPS Company X notifies part suppliers of increased demand. Suppliers increase inventory to meet demand.
Suppliers
Producers
Retailers
Cash
Retailers are selling product at a constant rate and price. Firms along the supply chain are able to set their inventory to meet demand.
Key:
= Inventory Levels
Retailers
Cash Flow
As demand increases, the distributor 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 (double in this example) to accommodate demand fluctuations. The top of the supply chain receives the harshest impact of the whip effect.
Key:
= Inventory Levels
Alliance arrangements.
1. Vendor managed inventory 2. On-site vendor representative