Role of Personal Manager

Coordination in a SC

Manmit Mahanta

Assistant Professor, GCMS

Bullwhip Effect & Lack of Coordination in a SC

• SC coordination improves if all stages of the SC take actions together increase total supply chain profit
• Sc coordination requires each stage of the SC to take into account the impact its actions have on other stages
• Reasons for lack of coordination:
• Different stages of SC have conflicting objectives
• Information moving between stages is delayed & distorted as it is not shared properly having different owners
• Conflicting objectives arises if different stages have different owners & each stage tries to maximize its own profits, results diminish in total profit
• With the increase in variety of products also leads to the conflict among the SC stages
• The outcome of lack of SC coordination is the Bullwhip Effect

Bullwhip Effect & Lack of Coordination in a SC

• Bullwhip Effect:
• Fluctuation in order increases as they move up the SC from retailers to wholesalers to manufacturers to suppliers
• Bullwhip effect distorts demand information within the SC with each stage having a different estimate of what demand looks like
• Ex: P&G have observed bullwhip effect in the SC for pampers diapers
• They observed that sales at the retail stores fluctuated less as consumer use them at a steady rate.
• But orders for raw materials were highly variable, increasing cost & making it difficult for supply to match demand.

Impact of Bullwhip Effect (Lack of SC Coordination) on performance:

• Manufacturing Cost:
• Increases manufacturing cost in the SC
• Due to bullwhip effect P&G & its suppliers must satisfy a stream of orders that is much more variable than consumer demand
• P&G can respond to increased variability by either building excess capacity or holding excess inventory, which increases manufacturing cost
• Inventory Cost:
• To handle increased variability due to bullwhip effect (lack of coordination)
• P&G has to carry higher level of inventory than would be required if SC were coordinated
• High Inventory = High Cost = Increased Warehousing Space = Increased Warehousing Cost
• Replenishment Lead Time:
• Increased variability makes scheduling at P&G & suppliers plants much more difficult compared to a situation with level demand
• Transportation cost:
• Labor cost of shipping & receiving: