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Order Size
Phenomenon Observed
in Supply Chains
Customer
Customer
Demand
Demand
Distributor
Distributor Orders
Orders
Retailer
RetailerOrders
Orders
Production
ProductionPlan
Plan
Time
2
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
Retailers
Warehouses/
Distributors
Manufacturers
Commonly, the variability of Q is 2 to 15 times the variability of D
Second tier
First tier
OEM
Prod
Prod
Prod
Stock
1
2
100
100
100
90
100
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
Prod
Stock
Stock
Stock
Demand
Second tier
First tier
OEM
Prod
Prod
Stock
Prod
Stock
100
100
100
100
100
100
80
100
90
90
100
95
95
100
90
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
Prod
Stock
Stock
Demand
Second tier
First tier
OEM
Prod
Stock
Prod
Stock
Prod
Stock
100
100
100
100
100
100
100
100
100
60
100
80
80
100
90
90
100
95
95
120
80
100
100
90
95
95
95
95
95
90
100
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
Prod
Stock
Demand
Second tier
First tier
OEM
Demand
Prod
Stock
Prod
Stock
Prod
Stock
Prod
Stock
100
100
100
100
100
100
100
100
100
100
100
100
20
100
60
60
100
80
80
100
90
90
100
95
95
180
60
120
120
80
100
100
90
95
95
95
95
95
60
120
90
90
100
95
95
95
95
95
95
95
95
100
90
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
Orders
10
Orders
10
Time
Manufacturer
Consumers
Wholesaler
Retail Store
Wholesalers orders to
manufacturer
Time
Source:SlackandLewis2002
Time
10
Orders
Stores orders to
wholesaler
Time
Bullwhip is Bad
It distorts the order information & amplifies order variability.
Higher costs
11
Causes
Order batching
Demand forecast updating (Lack of
information sharing)
Rationing of supply
Behavioral Causes
12
Mfctr.
Lead time L
Retailers
Customers
Order batching
Order Qt goes to upstream
Mfctr.
Lead time L
Retailers
Customers
14
Mfctr.
Lead time L
Retailers
Customers
L=5
In the past: demand (forecast) per period has been stable at 4; an order for
4 items has been placed each period; inventory levels have been kept low.
This period, demand has gone up to 8, and the forecast for future periods
has gone up to 8 as well.
How much should you order in this and coming periods to attain the right
inventory levels in the future?
Order 8+L(8-4) = 28 products now and 8 in coming periods.
15
Mfctr.
Lead time L
Retailers
Customers
In the past: demand (forecast) per period has been stable at 4; an order for
4 items has been placed each period; inventory levels have been kept low.
This period, demand has gone up to 28,
16
Car Manufacturer
Available = 200
Dealer 1
Order = 100
Received = 67
Dealer 2
Order = 200
Received = 133
Car Manufacturer
Available = 500
Dealer 1
Need = 120
Order = 180
(Received = 180)
Dealer 2
Need = 180
Order = 270
(Received = 270 )
Behavioral Causes
Not taking outstanding orders into
account.
Not using or misusing feedback and
additional information.
18
Initiatives
Order batching
Rationing of supply
Behavioral Causes
Training
20