Bullwhip effect

1.      Executive Summary

Business success is the main aim of all entrepreneurs. The interest of every entrepreneur is the satisfaction of the needs of its clients. Maximizing profits with minimum production cost is the glow of a business. Many businesses have a fear of losses or operating in great fear of the loss which may be incurred.  However, various businesses have different types of customers and face different challenges and opportunities. Therefore, each business exhibits different customer purchase behavior. Among the key consideration for the success of a business is the keen eye of the bullwhip effect. This affects the supply chain management of a business in various ways.

There are various uncertainties when the demand for a commodity is very little to the end consumer of products. This leads to uncertainties even to the manufacturer of the commodities. Therefore, the bullwhip effect should be minimized and brought to the point of equilibrium to prompt adequate and stable running of the business. There are various ways of the digital aspects of running a business with the correct prediction of the demand and supply dynamics in business.

Various strategies have been outlined on how to minimize the bullwhip effect for the maximum profit-making of a company. Nevertheless, there are also different digitally technical ways of ensuring reliable and efficient approaches for the best demand forecasting process in a business. Similarly, a business cannot succeed without the proper projection of the dynamics in the behavior of customers, external and internal factors affecting business, cost and, change of commodity in the future.

2.      Introduction

Bullwhip effect can be demonstrated by the idea of someone having a rope in their hand and nudging the rope to make few movements. The rope makes little curved movements near the holder but makes bigger curved movements as it increases the distance away from the holder. Consequently, a reflection of the supply chain idea operates like the above explanation. The customers are the holders of the rope from where low curved movements are made and continue in an increasing manner all the way up to the producer of the goods (Luong, 2007). There is an approximate of around 7 points between a final consumer of a good and the manufacture of the products. Every point in this chain has the aim of protecting the customers’ needs and keeping more stock in store to protect themselves from the dynamic variations of the chain.  Therefore, there is a long period of contact between the final consumer of a good and the manufacturer of a good. Consequently, there exists a sequence of unpredictability in the chain. Ultimately, the Bullwhip effect can be defined as the concept of the unpredictable dynamic characteristics of the supply chain sequence in marketing (Luong, 2007).

3.      Strategies to Minimize the Bullwhip Effect

Different industries have different characterizes and components of their chain of supply of goods. A key idea is the analysis of the bullwhip effect of each industry, which leads to the execution of improvement steps of the chain. The inventory that ranges from 10%-30% and in case a customer misses the orders placed it placed and achieved. There are various techniques used in the minimization of the Bullwhip effect (MA Badar, S Sammidi, L Gardner, 2013). They are as follows:

Understanding and acceptance of the Bullwhip effect

A fundamental step in controlling a thing would understand the issue. Therefore, for the control of the bullwhip effect, you have the ability to accept that it exists and understand that you need to change it. Various industries suffer the ignorance of bullwhip because of not accepting and identifying the buffer zones in their inventories. Analysis done to inventories would be a certain step in the maintenance of a supply chain inventories. It enhances the identification of useless and less-profitable inventories between the manufacturer and the end-user of the commodity (MA Badar, S Sammidi, L Gardner, 2013).

Improvement of the Inventory Planning Procedure

The planning of inventory involves various steps and stages, both current and historical. The multiple benefits of inventory planning include; determining seasonal demands, launching new commodities, stopping continuations of useless products, and futuristic use. Over time, the minimum to the maximum stock of each inventory should be subjected to updates due to the various dynamics in the chain. Each region’s inventory should be subject to the needs of that particular region (MA Badar, S Sammidi, L Gardner, 2013). Nevertheless, the primary negative dynamics are supposed to be incorporated into a system that is able to detect it early in time.

Improvement of the planning process if the raw materials.

As the resourcing of the raw materials is done, it is supposed to be linked to the usefulness and timely purpose of the raw materials. Nevertheless, the ordering of the raw materials should also be a continuation of the production process as involved and intended. The production outline and plan can be relayed out earlier in order for it to direct the purchase and order of the raw materials. The combination of small businessmen to larger business vendors enhances the improvement of the raw materials in terms of flexibility and resourceful reliability (MA Badar, S Sammidi, L Gardner, 2013).

Enhancement of the collaboration and information sharing amongst Managers

Different managers in an organization may be having various goals in an organization that may be contracting. The types of managers in an enterprise include the following departments; purchasing department manager, sales department manager, logistics department manager and, production manager, among others. The unity in the different departments is enhanced by the aim of each department been the major common objective of the institution. Nevertheless, common decision-making meetings among all the departments boost the information flow in the organization (MA Badar, S Sammidi, L Gardner, 2013).

Optimization of the Least Quantity Orders and Stable Prices

There are some commodities that have little order sizes for the final consumers. Subsequently, they cause increasing gaps in order placements. To improve the sequence of the orders, the minimum order size can be regulated from minimum to equilibrium order level (MA Badar, S Sammidi, L Gardner, 2013). Nevertheless, affordable prices per commodity increase the lasting of goods in the market compared to the promotions and the offering of discounts to the customers.

4.      How Digital Approaches can Improve the Demand Forecasting Process.

The demand forecasting process enhances the performance of the organization by offering various benefits. For instance, Demand Planning is a benefit of demand forecasting. It assists in helping to see the demand projection of the future and what amount of orders may be needed at a particular time in the future. Demand forecasting is also another advantage. It involves giving the probability of demand for any commodity at any given time in the future. There are various digital methods used in the demand forecasting process (S Kakouros, D Kuettner, M Sasser, N Smith, 2009). They are as follows:

Predictive sales analytics

This is statistical software installed in businesses. It predicts the demand for a commodity and also analyses the clients’ response after the acquirement of the services in different business environments. This software has the following functions;

• Cleaning up records
• Creation of models to give a description of what happens in the future in terms of the outcomes and various factorial relationships.
• Categorizing different data from different sources, whether historical or new data.
• Different commodities fit different algorithms for forecasting; therefore, it determines the type of algorithm which best works on various products.
• Keeping watch on the performance of the models for the purpose of increasing the accuracy and relevance of the data analysis.

This software is important in a company because it enhances the company to compare various tools and factors of success, including; promotion setups, changes in the weather, and every particular factor that influences the willingness of the customer to buy a product. Consequently, it informs the management of a business of the new challenges and opportunities, expected changes in the future, among others (S Kakouros, D Kuettner, M Sasser, N Smith, 2009). Nevertheless, this software also has various challenges, which include; complexity in the understanding of how it works with the algorithms, it gives the prediction of a minimum of a month and not too far into the future.

Demand sensing

This involves the use of machines for the purpose of recording, identifying, and analyzing real-time customer behavior and patterns. It may not solely be used for the purpose of predictions but an informant of the current variations in the purchasing of products. Therefore, this is the most suitable and more productive in a fast dynamic business environment. For instance, demand sensing may suitably work in a warehouse among other businesses where it uses the data collected on a daily pattern and compares it to the historical data and identify any necessary adjustments in the business (S Kakouros, D Kuettner, M Sasser, N Smith, 2009). The system, therefore, makes an analysis of the data, provides short-term solutions, and identifies the various influencing factors and provision of adequate adjustments of the various factors.

The accuracy of this method of demand forecasting is about 60-70%. A major advantage is the empowerment of businesses to address the fast variations in business operations in regard to the customers. Therefore, enabling businesses the power to address the shortcomings to their clients and also provoke the prompting of a customer demand-oriented supply. However, this method does not serve either long or medium-time forecasting. Like any other aspect, it is also faced by various challenges, which include; the use of algorithms for its performance. It also requires a lot of computation knowledge and skills (S Kakouros, D Kuettner, M Sasser, N Smith, 2009). Again, some of the signals produced by the machines may be inaccurate, so it needs human proof for it to be effective and of benefit.

5.      Conclusion

The understanding of the bullwhip effect in a business is a big determinant of its success. Nevertheless, there are also various ways in which the bullwhip effect can be controlled for the best performance of an organization. Like any other entrepreneur, the profit-making and fast growth of a business is the main agenda of a business. Without a proper demand forecast understanding, a business is likely to undergo various challenges as part of its successful journey. Nevertheless, it’s also of utmost importance that a business is maintained far away from the contrary of good demand forecast techniques and processes.

Challenges and Opportunities are all the characteristics of a business. However, it is the effort of the entrepreneur to ensure that the business’s opportunities override the business’s challenges. Customer satisfaction is another major challenge in running a business. A customer is the boss of business because the ultimate person to be served is the customer. Nevertheless, their opinions and feedbacks are as crucial to a business and the ideas from the management of the business. The goods procured in the supply chain through the various stages are consumed by the customers. Without the existence of the customer, the various stages of the chain cannot be complete because of the lack of the consumer of the produced goods and services.

6.      References

Luong, H. (2007). Measure of bullwhip effect in supply chains with autoregressive demand process. European Journal of Operational Research, 1086-1097.

MA Badar, S Sammidi, L Gardner. (2013). Reducing the bullwhip effect in the supply chain: A study of different ordering strategies. The Journal of Technology Studies, 52-63.

S Kakouros, D Kuettner, M Sasser, N Smith. (2009). Monitoring a demand forecasting process. US Patent .