During the recent webinar, Inventory Fitness – Governance, Targets, and Segmentation, we took audience questions and answered them.
Here are some issues that people in industry face and are interested in finding a solution to!
Question 2 of 14
Question:
How does the bullwhip effect impact supply chain efficiency, and what strategies can be implemented to mitigate its negative effects?
Answer:
Well, the Bull Whip effect has a direct impact on both capital requirements and efficiency from an expedite perspective.
If you have a decrease in demand and inventory stack up, you have a problem with working capital. If, on the other hand, you have a sudden demand surge and that gets further amplified, you can end up with a situation where you’re having to expedite significant amounts of product. In either way, the amplification of small or even large disruptions can really have a direct effect on the costs associated with running your business.
I think we need to look at some simple tactics around this as well as the impact of having a plan. So we can allocate cusp inventory. We can call customers to make sure they have inventory. We can expedite raw materials. These are things on the supply side and demand side that we can do, typically, under the auspices of S&OE, but we want to do that with a plan.
These decisions should have been thought through ahead of time so that we’re not rushing around.
We can also consider that one level higher, and that is in collaboration and communication with our customers and suppliers. That has to be thought through ahead of time so that we don’t have that bull whip effect happen. We’ve shown in both running the beer game simulations as well as at clients, having a plan thought through in advance is critical. Communicating that plan and gaining consensus on it is essential, and being proactive is what really makes that work.
Remember, we’d be happy to chat with you about any of this in more detail.
And if you’re interested, check out our schedule for upcoming business process improvement courses that we offer throughout the year to help you achieve business excellence.