1). Discuss how each of the following helps to alleviate bullwhip effect? a). E-Commerce and Internet: E-Commerce and Internet have come a long way since their inception. Customers have the option of, making the orders online at any point in time. There are specific shop timings to affect the sales of the product but this does not apply after the inception of E-Commerce. Added to this; most of the internet applications today are so effective that they can actually be integrated with the existing databases to provide sales and customer demand information at different stages of the supply chain. This advancement in technology definitely helps in alleviating the bullwhip effect since the upstream stages of the supply chain can plan and have an idea of the changes in customer demand for a product. All the stages in the supply chain can make effective and efficient decisions, to involve in similar inventory polices and planning activities so that the whole supply chain can be optimized (Global Optimization) rather than any sequence (i.e. Sequential Optimization).
Thus E-Commerce and Internet definitely adds value in increasing the vital information to control inventory, production, lead-times etc. b). Express Delivery: Express delivery options basically help in reducing the lead-times associated in each of the stages of the supply chain. As a matter of fact lead-time is one of the major causes to add to the variability in the supply chain, as a result enhancing the bullwhip effect across the upstream stages. Due to the availability of information and the express delivery options that are being offered today; for example, by FedEx, UPS etc, the suppliers are able to ship the components at a faster rate to the manufacturers and similarly the warehouses to the retailers. Thus Express Delivery options are able to resolve the bullwhip effect to a great extent, which is providing an opportunity for the players in the supply chain to plan well and effectively. Also, as discussed in this chapter the manufacturers and distribution centers will have an option open to wait till the demand for different products reach the full truck load limit so as to save in the transportation costs.
As a result of all these advantages the Express Delivery of Goods definitely helps in alleviating the bullwhip effect. c). Collaborative Forecasts: As discussed earlier, the collaborative forecasts helps in attainment of global optimization of the supply chain. This is assured only when all the players or stages in the supply chain adhere to the fact that they are open to the information sharing. Whenever the concept of information sharing exists then the availability of the customer demand, Sales and the stock on hand information at each stage of the supply chain is made clear and the different players such as the suppliers, manufacturers, warehouses and the retailers can involve or use the same inventory policy to control their inventory. This helps in sharing the risk across the supply chain and will help in proper planning, maintenance of inventory, reduction in lead-times and transportation and variability and thereby reducing the bullwhip effect. d). Everyday Low Pricing: Everyday low pricing is excellent concept that will make the customers buy products on a regular basis.
As observed in the case of Wal-Mart, this concept helps in managing the products in such a way that the price of the product offered to the customers can be reduced for the periods henceforth. This is achieved by collaborating with the manufacturer to control the inventory of the retailer. In order to achieve this, there is a requirement of information sharing from the retailer to the manufacturer, so that the manufacturer estimates the demand in the retail store and makes agreements to replenish the goods himself. This is successfully implemented in Wal-Mart and as discussed above is one of the best ways to reduce the bullwhip effect across the supply chain. e). Vendor – Managed Inventory: Vendor – Managed Inventory is the same situation where the manufacturer gets to know the consumer demand from the retailer and manages and replenishes the inventory at the retailer. In order to involve in the Vendor Managed Inventory the retailer should be able to share the demand and sales information with the manufacturer or the distributor.
The advantage of this concept is that this can be applied across all the upstream stages of the supply chain and can reduce the supply chain costs to a greater extent by reducing the risks involved across all the stages and improving the management of inventory. Thus, due to the above explained advantages the Vendor – Managed Inventory helps in alleviating the bullwhip effect. f). Supply Contracts: Supply contracts go a long way in achieving Global optimization of the supply chain. It helps the supply chain players in the long run in sharing their profits, costs and reducing the risks on mutual agreements and by creating win-win situations. The supplier contracts are mainly made to share the customer information across all the stages of supply chain. These are generally made for a mutual benefit among the supply chain players. For example the retailer will share the information of the customer demand and sales information with the distribution center.
The distribution center will involve in providing some incentives to the retailer in the form of making money if the sales exceed a certain value or help in the retailers promotional and advertising activities. Over the years the manufacturing and service industries have realized the importance of supply contracts in reducing the risks, uncertainties and the corresponding variabilities that exist in supply chain. Hence we can state that Supply Contracts came a long way in achieving Global Optimization of the Supply Chain and thereby alleviating the bullwhip effect. 3). What are the advantages of retailers sharing inventory? For instance, you suppose to go the car dealer, to find a blue model and he doesn’t have that model in stock. Typically he will obtain the model from another local dealer. What are the disadvantages to the retailer? A). The advantages to the Retailer are:
a). He wins the confidence of the customer. And thereby increases his sales and service levels. b). He will share the profit from the another local retailer from whom he is obtaining the car. c). Creates a Win – Win situation for him, the consumer and the local dealer. d). Reduces the lead time and thereby involves in on-time delivery. e). Reduces the bullwhip effect.
The Disadvantages of the Retailer are:
a). He loses the total sale value of the car since he is collaborating with the another local dealer.
b). Risk of losing the customer. Since even though he assures the car to the customer, the customer has always has the option of going to his competitor to go and buy the car.
c). Increased lead time.
d). Reduced Revenues.
e). Reduced Service Levels.
f). Should be in definite supply contract with the local dealer.
4). Discuss five ways that lead times in the supply chain can be reduced? A). The ways in which the lead times in the supply chain can be reduced are by:
1). Information Sharing: Information sharing can reduce the order processing times to a Greater extent and thereby reducing the lead-times.
2). By accurately estimating safety stock and base-stock levels to help not to get out of stock. That is involving in more accurate forecasting of demand in the upstream stages of the supply chain.
3). By the usage of EDI (Electronic Data Interchange) to reduce the information lead time and therefore involving proper planning of inventories.
4). Reducing Ordering Lead Times By cross docking.
5). Involving in more accurate forecasts; due to decreased forecast horizon.
6). Involving in optimal distribution network designs.
7). Obtaining point of Scale Data from the retailer will help the supplier know the exact sales of the retailer and thereby involving in maintaining right amount of stock at the right time in the right proportion and at the right location (Distribution center or Warehouse).
8). Involving in Vendor Managed Inventory.
9). Involving in Supplier contracts, that is in the situations where the retailer is out of stock, retailer can ask the wholesaler or the warehouse to directly ship the components to the customer.
5). Consider the supply chain for breakfast cereal. Discuss the competing objectives of the farmers who make the raw materials, the manufacturing division of the company that makes the cereal, the marketing of the company that makes the cereal, the distribution arm of the grocery chain that sells the cereal and the manager of an individual grocery store that sells the cereal. A). The competing objectives for the farmer would be producing the raw material i.e. harvest as much as much as raw material possible and sell it to the manufacturer i.e. in large quantities. The manufacturer might not want to take the risk in buying large amount of raw material from the farmers, because of the fluctuations in demand from the distributors.
The competing objective for the distributor arm of the grocery chain would be getting the required packets or quantities of cereals according to the demand of the retailer. So the major objective for them is to manage the uncertainty in demand from the retailer or the actual grocery store and get the right quantities from the manufacturer. The competing objective of the grocery store is to understand and answer the uncertainty in the customer demand and getting in required quantities of the cereal. 6). Consider Example 5-1 and discuss strategies that could help Newbury Comics and SoundScan Inc. Solve the misalignment problem. A). Information sharing is an important element in reducing the variability in the supply chain and thereby reducing the bullwhip effect. But if they ate not done on the basis of reliable contracts and agreements then it will be a loss to one of the players involved in it.
Here in the Newbury comics case, the company got price incentives on the record labels provided by the SoundScan and in return to that; Newbury Comics used to share the information with the Sound Scan, but the discrepancy came when SoundScan started sharing the information from the competing retailers which did not comply with the Newbury Comics supply terms because they did not receive the exact aggregated demand for the products. So in order to avoid such a misalignment in the information sharing SoundScan should come into terms like what sort of information they would want to share with Newbury comics and to what levels. Since this causes loss to the Newbury Comics, if SoundScan shares the Newbury information to other competing retailers. Thus both the parties should be careful in sharing the information and making agreements as we can observe in this case it’s a great loss for the Newbury Comics to stay in competition in the market.