“As a supply chain manager, you must eliminate the bullwhip effect in your supply chain”
Word count: 1624 words
The bullwhip effect is a shadow tendency enlightened by Forrester in 1958 and
Procter and Gamble Executives.
Their findings were the stumbling blocks of the current definition of the bullwhip effect which can be described as the amplification ofthe order variability upstream the supply chain.
The objective of this work is to understand if a manager should consider the elimination of the bullwhip effect or not.
In the first part are exposed two reasons against the bullwhip effect fighting, as one must consider that it is an inherent feature of supply chain and that the bullwhip effect eradication is just an investment possibility.In the second part are presented the reasons supporting the elimination of the bullwhip effect under three aspects: competitive advantage, customer service and cost reduction.
It is hard to find reasons against the supply chain propagandists who claim that inventories should be minimized, information along the supply chain should be undisrupted and that every phenomenonplaying against the chain should be eradicated. Amongst all the information filtered to support this work, no argumentation against the bullwhip effect elimination has been encountered.
However, a manager dealing for the first time with the bullwhip effect in his business should address the following questions before going further.
Is the elimination really possible?
The pure eliminationwould be too expensive as it would require a tremendous flexibility and synchronism from all the channel members (for example, a paper manufacturer can not stick perfectly to the demand of notebooks in libraries). Moreover, the final customers demand will still push the retailers to store a “just in case stock”, because the demand, especially for consumer goods such as Philips DVDs players,remains stochastic and volatile.
Consequently, the verb minimize or shorten should be used instead of eliminate.
Is it worth it?
First, it is worth if the goods can bear the extra costs needed for the implementation of bullwhip effect healing techniques, indeed, the prices of certain low value commodities with long transit time (e.g. sand or rubble) would be increased so much that they wouldruled out from the market.
Second, it is worth only if the channel member can afford eliminate the bullwhip effect, actually, the costs of consultancy and implementation is rather high, even if Philips saved $5 million per year since the implementation of the anti bullwhip system, the firm spent $1.5 million on a $300 million yearly turnover to develop and settle it.
Therefore, it would be wiseto carry out a investment appraisal to see if the firm not would better choose another option (invest in bio-fuel transport means, employ postgraduates students…).
I - Benefits from another competitive advantage
Porter in 1985 stressed two basic comparative advantages needed by firms to remain in the competition race: price or differentiation.
However, inside the ElectronicsManufacturing Services supply chain these two features are no longer sufficient to remain in the market. Indeed, EMS companies were the pioneers to off-shore electronics production and assembly in South-East Asia since the late 70’s (especially in Taiwan, Hong-Kong and China), so nowadays, every players are aware of the best production network to use for cheap electronic products (the labour costincluded in the total producing cost of a chip worth 50 % less in China compared to the US (Miller Harvey, S. 2003)).
The differentiation through innovation is a solution but, according to Modi (2004), “Innovation alone will not cut it”. In the context of “new lower-cost competitors” and “low-margin businesses” (Shunk, 2004), EMS firms are now confronting the same situation as the automotive market...
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