"Bullwhip effect" is a term in economics, which means that when the various links of the supply chain enterprises only guide production or supply decisions based on the demand information of their downstream neighboring enterprises, the inaccuracy of the demand information will go up the supply chain, so that the demand forecast amount has a phenomenon of gradual amplification, and when it reaches the source supplier, there is a big deviation between the demand information obtained and the actual market demand; due to the impact of this gradual amplification of demand, As a result, upstream suppliers tend to maintain higher inventory levels than downstream suppliers.
When this demand gradually enlarges, it is very similar to the whip used to drive cattle, so it is vividly called the "bullwhip effect".
The "bullwhip effect" is undoubtedly the most prominent in today's supply chain management. This is due to four reasons.
First, the demand forecast is enlarged
Demand forecast amplification refers to the members of the supply chain according to the downstream supply plan to develop the enterprise's demand plan, in order to ensure the supply of delivery time, the enterprise often the downstream submitted plans to enlarge the quantity, and then pass upwards.
Second, the impact of price strategy
The impact of price strategy is divided into two situations, one is the bulk discount, resulting in an increase in the single volume of each link in the supply chain, requiring a higher amount of safety inventory; the second is due to wholesale, promotion and other factors caused by price fluctuations, supply chain members in the low price stage to buy a large number of goods for hoarding, not according to the real needs of the market forecast.
Third, share the cost of ordering
Since the cost of ordering has a correlation with the number of orders, in order to reduce the cost of transportation and other costs, the one-time purchase volume of supply chain members is much greater than the actual demand, so that the demand is amplified and transmitted.
Fourth, the shortage game
High demand products in the supply chain is often in short supply, when the demand is greater than the amount of inventory, the manufacturer will be based on the downstream demand to determine the allocation ratio, such as according to the total amount of the submitted demand 30% supply, some downstream enterprises in order to obtain more inventory, then falsely reported the forecast demand quantity. So how can companies alleviate the "bullwhip effect"?
First, improve the ability of enterprises to share information
Each enterprise in the supply chain must exclude the impact of the decision of the downstream enterprise on the upstream enterprise in its own needs, which requires each enterprise to make its own demand forecast according to the actual demand of the final product market, at which time the actual demand information of the consumer market must be shared by every link of the supply chain.
Second, a reasonable pricing strategy
Adopt the strategy of supply contract in batches, establish demand contracts for the next year/quarter in the previous year/quarter, supply in batches, and maintain a stable supply.
3. Joint inventory management
By sharing production capacity and inventory information, we adopt the strategy of risk sharing and benefit sharing; multi-party participation at the same time, jointly formulate inventory control plans, so that the supply and demand sides coordinate with each other, so that inventory management becomes a connected hub.
This is generally believed, the best way to solve the "bullwhip effect" is to shrink the whip as short as possible, so that the change will be small. Through the efficient supply chain management system, the "bullwhip effect" can be reduced, the operating costs of enterprises can be directly reduced, and the ideal realm of real-time response to customer needs can be realized.
It can be said that an efficient integrated supply chain is considered the most effective weapon for solutions. But some traditional models must change to be truly efficient.