Explain what is meant by bullwhip effect and how it could be prevented?
An organization will always have ups and downs. It is necessary that the managers of the organization keep track of the market conditions and analyze the changes. They must take decisions on the organization to meet the market demands. Failing to do so may adversely affect the functioning of the organization resulting in lack of coordination and trust among supply chain members. The changes may effect the information and may lead to demand amplification in the supply chain. The bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain. This has its affect on almost all the industries, poses a risk to firms that experience large variations in demand. And also these firms which are dependent on suppliers, distributors and retailers.
A bullwhip effect may arises because of-
Increase in the lead time of the project due to increase in variability of demand
Increase in the stock to stock to accommodate the increasing demand arising out of complicated demands models and forecasting techniques
Reduced service levels in the organization
Inefficient allocation of resources
Increased transportation cast
How to prevent it?
Bullwhip effect may be avoided by one or more of the following measures- Avoid multiple demand forecasting
Breading the single orders into number of batches of orders
Stabilize the prices avoid the risk involved in overstocking by maintaining a proper stock
Reduce the variability and uncertainty in paint of sale (POS) and shaving information
Reduce the lead time in the stages of the project
Always keep analyzing the past figures and track current and future levels of requirements
Enhance the operational efficient and outsourcing logistics to capable and efficient agency
On the bullwhip effect it is the theory from MBA book MB0028 of Sikkim Manipal University. It is one of the questions of MBA assignments. Bullwhip effect prevention theory has been introduced in the assignment also.