The Bullwhip Effect 101 — Transcript

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1. 0:05what is the boip effect the boip effect
2. 0:08is the unexpected Distortion of the
3. 0:09supply chain caused by repetitive
4. 0:12variation in demand the unplanned demand
5. 0:14from retailer oscillates back to the
6. 0:16distributor and finally to the supplier
7. 0:19magnifying through each level of the
8. 0:20supply
9. 0:21chain why is it called the bull whip
10. 0:24effect as the oscillating demand
11. 0:26magnifies Upstream in the supply chain
12. 0:29it is reminiscent of a cracking whip why
13. 0:32is this a problem well this can have a
14. 0:34negative effect on business performance
15. 0:36such as infantry disruptions quality
16. 0:38control problems diminished customer
17. 0:40service and increased costs of material
18. 0:42and
19. 0:43Manpower welcome to proon gamble
20. 0:46manufacturer of Pampers disposable
21. 0:48diapers let us introduce you to their
22. 0:50supply and demand chain which is similar
23. 0:52to most supply and demand chains this is
24. 0:54little Martin our consumer at the
25. 0:56customer end he may look cute and
26. 0:58adorable now but wait until you see the
27. 1:01Havoc is about to cause or maybe we
28. 1:03should say the havoc's mommy is about to
29. 1:06cause this is your typical retail store
30. 1:09wmart one of many which stocks and sells
31. 1:12Pampers diapers wmart is having a sale
32. 1:15this weekend and running Pampers as a
33. 1:16loss leader 50% off all the mummies are
34. 1:19very excited so they are planning to
35. 1:21stock up all mod orders in bulk from its
36. 1:25distributor BS Distributors taking all
37. 1:27its safety stock in the process BS has
38. 1:30no stock left to supply wmart or any
39. 1:32other retailer for that matter not
40. 1:34knowing what is going on and where all
41. 1:36these babies suddenly came from B places
42. 1:38a big order to replenish its inventory
43. 1:41with a
44. 1:42factory proor Gamble's Factory gets the
45. 1:44big order and starts Manufacturing in
46. 1:46overdrive but first it has to negotiate
47. 1:49with the Union regarding overtime pay
48. 1:51and get a lot more supplies from its
49. 1:53suppliers to get the production on track
50. 1:55for the new influx of babies the
51. 1:57supplier is not prepared for this sudden
52. 1:59large order order and has insufficient
53. 2:01raw material required to make the
54. 2:03diapers because it does not have enough
55. 2:05stock the supply causes additional
56. 2:07delays in
57. 2:08production meanwhile allart places
58. 2:10another order that is bigger than normal
59. 2:12because it had great sales this weekend
60. 2:14and no stock left but the distributor is
61. 2:16panicking because they have no stock
62. 2:17left and the factory has not sent nearly
63. 2:19enough to cover the orders so the
64. 2:21distributor places yet another big order
65. 2:23and so it continues because no one is
66. 2:25getting their orders they carry on
67. 2:26placing big orders still compounding the
68. 2:29problem the factory is taking strain
69. 2:31suppliers are under pressure
70. 2:33Distributors are panicking retailers are
71. 2:35upset because they didn't get their
72. 2:36orders mommies that could not get to the
73. 2:38almart sale are upset because they have
74. 2:39to buy Snuggies and ones that made it
75. 2:42don't know what the fuss is all about by
76. 2:44the time the factory starts delivering
77. 2:46everybody Downstream starts canceling
78. 2:47their orders and the factory is left
79. 2:49with an over supply of stock so why does
80. 2:51this matter well because of the stock
81. 2:53out baby has to wear Snuggies which give
82. 2:55him a rash all mod L sales and consumers
83. 2:57are unhappy because they don't have
84. 2:58stock beer distributors retail customers
85. 3:01are unhappy because it took so long to
86. 3:03supply them with stock and they in turn
87. 3:05are in the dog box with the factory for
88. 3:07canceling half their orders the factory
89. 3:09incured additional costs to get the
90. 3:11orders out faster and the suppliers
91. 3:13incur additional costs in sourcing raw
92. 3:15material for the factory and now the
93. 3:17orders have been cut in
94. 3:19half so now that you know what the bull
95. 3:21would be is you probably want to know
96. 3:23what causes it and how we can prevent it
97. 3:25there are numerous factors often in
98. 3:27combination which contribute to the bull
99. 3:29wh effect
100. 3:30we will consider four of the major
101. 3:32causes price fluctuations and sales
102. 3:34promotions sales promotions and price
103. 3:37discounts result in customers buying in
104. 3:39large quantities and stocking up as a
105. 3:41result the buying pattern does not
106. 3:43reflect the actual
107. 3:45consumption order batching companies
108. 3:47Place orders in batches often to avoid
109. 3:50the cost of processing orders more
110. 3:51frequently or to avoid the high
111. 3:53Transportation costs for less than
112. 3:55truckload orders shortage gaming if
113. 3:58product demand exceeds Supply
114. 4:00manufacturers ration products while
115. 4:02customers exaggerate their orders to
116. 4:04counteract the rationing eventually
117. 4:06orders will disappear and cancellations
118. 4:08will pour in making it impossible for
119. 4:10the manufacturer to determine the real
120. 4:12demand for its product demand
121. 4:14forecasting accuracies as each entity
122. 4:17along the chain places an order it
123. 4:19replenishes stock and includes some
124. 4:21Safety stock with long lead times they
125. 4:23may be weeks of Safety stock which make
126. 4:25the fluctuation in demand more
127. 4:28significant C measures to fluctuating
128. 4:30prices fluctuating prices can be
129. 4:32replaced with everyday low prices
130. 4:35counter measures to order batching more
131. 4:37frequent ordering results in smaller
132. 4:39orders and smaller variants counter
133. 4:42measures to shortage gaming proportional
134. 4:44rationing schemes are counted by
135. 4:46allocating units based on past sales
136. 4:49ignorance of supply chain conditions can
137. 4:52be addressed by sharing capacity and
138. 4:54Supply information across the entire
139. 4:56supply chain counter measures to demand
140. 4:58forecasting inaccuracies lack of demand
141. 5:01visibility can be addressed by providing
142. 5:03access to point of sale data single
143. 5:07control of replenishment or vendor
144. 5:09management inventory can overcome
145. 5:11exaggerated demand
146. 5:13forecasts long lead times should be
147. 5:16reduced as much as possible with all
148. 5:19this said it's actually all about
149. 5:21communication communication
150. 5:28communication