SCM Bullwhip Effect
Retailers around the world are constantly looking to improve business activity. One of the most significant challenges that companies go through in the planning and logistics of the supply chain is the well known as “bullwhip effect”, for many companies this incident is a phase that can be easily overcome, but for many others it is a situation that is hard to determine and find a solution for. The bullwhip effect can be defined as an occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance than the sales to the end customer. These random orders in the lower part of the supply chain can develop to be a more distinct issue higher up in the supply chain. This variance can interrupt the flow of the supply chain process as each link in the supply chain will over or underestimate the product demand resulting in exaggerated instability. Walmart is one of the largest retail company in the United States, and as many other companies had suffered for this effect, many factors cause or contribute to the Bullwhip effect and some of them are price fluctuation, order batching, shortage gaming and forecast inaccuracies. Walmart’s systems can be used to advantage in dealing with the four factors above to minimize the possibility of a bullwhip effect.
As both videos stated, the major key to success to overcome the bullwhip effect is forecast in sales. This really is vital especially when it comes to shortage gaming. This usually happens when the demand exceeds the supply when retailers ration products, in which by the time the retailer makes more orders to satisfy the demand, angry customers will more than likely cancel their orders making it difficult for the manufacturer to determine the real demand of the product and the retailer will end up having a surplus of quantity of the product. Walmart actually is able to use their data from the POS systems after a transaction to track sales history for the past two years. Walmart also held a meeting in the video discussing their products and how much were sold in a two day period and telling the stores to make more orders in of the product. The second video also showed how Walmart overcomes shortages during severe weather conditions such as hurricane season by using their data to forecast their orders on a product such as Pop-tarts. Their data showed that during hurricane seasons for the previous two years, consumers tend to stock up on strawberry Pop-tarts. With this information Walmart would contact their suppliers and buy the pop tarts in larger bulk quantities to prevent shortage gaming.
Price fluctuation is also a significant effect of the bullwhip and Walmart found different ways of overcoming this effect. As the video said , Walmart is always one step forward in the market giving the best prices possible to consumers so in that way they can avoid surges resulting from promotional discounts. They keep their prices low on a regular basis, instead of having an item very discounted at times to avoid running out of a product, then overstocking and finally when the price goes back to normal having an abundance of it. In the video, Walmart’s Chief Information Officer, Dillman technique was to stop by Target and see how the stores can improve. She noticed their prices are getting comparable and levels of stock are high. Her solution is observe the change in prices since that is Walmart’s competitive advantage. In the case of price fluctuation, forecasting and prevention go along together to decrease this effect. It is shown that Walmart always has the capability of getting the suppliers at the right moment and in the right price for customers to be Walmart the first option at the moment of getting their merchandise.
In a fashion similar to Walmart’s business model, by utilizing previously observed purchasing trends, it is likely that a business may be able to minimize the bullwhip effect by more effectively predicting the demand of their products. In turn, this will allow a company to gauge exactly how much of a product they will need to order at a time rather than ordering in bulk and risking allowing their products to go unsold and either perishing or remaining in the back stock room of their stores. As mentioned in the video provided, another remedy to the bullwhip effect is ordering products with more frequency rather than by ordering in bulk. It is essential to record, track, and act upon previously collected data regarding sales trends in various circumstances in order to most effectively combat this effect. One of the most interesting examples is the effect that weather patterns have in particular demand on specific products. For example, Walmart is not only aware of the fact that Pop-Tart sales skyrocket during adverse weather phenomena such as hurricanes, but due to their meticulous tracking and recording of sales patterns, supply chain management is able to be aware of the fact that the strawberry flavored Pop-Tarts sell particularly well. By not only utilizing this information to keep stores well stocked, but communicating that information to manufacturers and suppliers, the bullwhip effect is more effectively diminished.
Coordination between the different retailers, distributors, manufacturers, and suppliers is essential to eliminate the forecast inaccuracies. For instance, Dillman controls in store operations for when she observes that a product is selling at a fast rate, she makes sure to keep it replenished. The understanding in the level of actual demand for a product maintains the inventory levels correct, without the need of overstocking or having out of stocks.