This document discusses supply chain dynamics and the bullwhip effect. It explains that small changes in customer demand can cause larger fluctuations in orders as they move up the supply chain. This disrupts supply chain performance. The causes of unstable supply chains include demand forecasting, order batching, price fluctuations, and lack of coordination. Managing these dynamics requires supply chain coordination through information sharing and alignment, as well as strategies like strategic buffering of inventory and improving operational performance.

1. Supply Chain
Dynamics

2. Supply Network Dynamics
•Supply chains are rarely stable particularly the consumer
goods supply chains.
•Small changes in ordering patterns causes fluctuations in
order levels that increase both in scale and unpredictability as
we proceed upstream in the chain. This phenomenon is known
as ‘supply chain amplification’, ‘supply chain distortion’,
‘the Forrester effect’ (after the person who first modelled it),
or most descriptively ‘the bull whip effect’.
•Supply chain dynamics can wreak havoc on supply chain
performance measures.
•The underlying cause of the supply chain dynamics may be
both quantitative and qualitative.
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3. Final Customer
Initial
Supplier
Demand
Demand variations begin at the
customer end of the chain and
become increasingly large as they
radiate backwards through the chain
Bullwhip Effect
Inventory oscillations become
progressively larger moving
backward through the supply chain
Bullwhip effect has adverse effect on performance of each stage and
hurts the relationships between different stages of the supply chain

4. Quantitative Supply Chain Dynamics
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Assumption: All stages in the supply chain work on the principle that
they will keep in stock inventory worth one period’s demand.

5. Qualitative Supply Chain Dynamics
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6. Major Causes of Supply Chain Instability
• Demand forecast updating
- Order from a stage to its supplier is a function of demand from its
immediate customer and planned inventory level
• Order batching
- Orders are placed on suppliers to optimize ordering and transportation
costs
• Price fluctuations
- Promotional offers, discount sales etc.
• Rationing and shortage gaming
- Supply chain distortions caused by rationing by suppliers
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7. • Over-reactions to stockouts
• Quality problems
• Labor problems
• Delays in shipments of goods
• Incomplete or delayed communications
• Lack of coordination of activities among organizations
• Forecast inaccuracies
• Order batching
• Product mix changes
• Sales incentives
• Liberal product return policies
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Other Causes of Supply Chain Instability

8. Tier 2
Suppliers
Tier 1
Suppliers
Producer Distributor Retailer
Final
Customer
Amount of
inventory
=
Inventory in SC: Bullwhip Effect

9. Managing Supply Chain Dynamics
1) Supply Chain Coordination
 Information Sharing
• Transmitting accurate and timely information up the chain across
all the operations. Sharing information regarding:
- True demand using POS data, EDI
- Supply problems & shortages
• Collaborative forecasting based on customer demand not on
orders
 Channel Alignment
• Adjustment of scheduling, material movements, pricing and other
sales strategies, and stock levels to bring them into line with
each other
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The first step in managing Bullwhip Effect is to understand the nature
of the supply chain dynamics.

10. Managing Supply Chain Dynamics
2) Strategic Buffering
• Holding inventory at a distribution center rather at retail outlets
• Replenishment based on need
3) Vendor-Managed Inventory
• Vendors monitor goods and replenish retail inventories when
supplies are low
4) Aligning Goals and Incentives
• Aligning goals incentives across stages
o Facility, transportation and inventory decisions based on profitability not
total cost (Absolutely not based on local cost)
• Altering sales force incentives from on Sell-in to Sell-through
• Rationing based on past sales
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11. Managing Supply Chain Dynamics
5) Improving Operational Performance
• Reducing complexity of operations
• Reducing replenishment lead time
• Reducing lot size
• Echelon based inventory control
6) Pricing Strategy to Stabilize Orders
• Volume-based quantity discounts rather lot size based discounts
• Stabilizing pricing
- Decreasing forward buying by limiting quantity during promotions
- Tying promotional dollars payment to retailer to the amount of sell-
through
7) Building Partnerships and Trust
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