BUS606 Study Guide

Unit 9: Supply Chain Integration and the Bullwhip Effect

9a. Describe possible supply chain integration strategies to help mitigate supply and demand uncertainty depending on the product or industry 

  • How can a supply chain mitigate demand uncertainty?
  • How can a supply chain mitigate supply uncertainty?
  • Is there a way for a supply chain to mitigate both demand and supply uncertainty?

Mitigating demand and supply uncertainty is crucial in supply chain management, particularly in light of increasingly unstable markets and logistics. Lean supply chains were developed to help mitigate demand and supply uncertainty variability. Lean supply chains helped reduce demand uncertainty by standardizing production, allowing customers to choose from a fixed list of options to add to the standardized product.
However, mitigating supply uncertainty is gaining importance in supply chain management. Volatility in supply affects business processes, leading to developing new processes, purchasing new materials, using different suppliers, or negotiating new customer requirements.
Depending on the certainty/uncertainty of demand and supply, we can look at four different models of supply chains:

  1. Efficient supply chains;
  2. Risk-hedging supply chains;
  3. Responsive supply chains; and
  4. Agile supply chains.

To review, see Agile Information Systems for Mastering Supply Chain Uncertainty.

9b. Describe a range of supply-chain strategies, such as agile supply chains and risk-hedging supply chains, as a function of supply chain type and product type 

  • How does an agile supply chain differ from a lean supply chain?
  • What type of product is likely manufactured with lean manufacturing? Agile manufacturing?

Supply chain managers must rely on their ability to reduce costs, increase customer service, and provide a competitive advantage. Both lean manufacturing and agile manufacturing can help supply chain managers achieve their goals. Lean manufacturing focuses on resource efficiency and high performance; agile manufacturing focuses on satisfying customer requirements. Some manufacturing is done through a hybrid model that combines lean and agile manufacturing attributes.
Lean manufacturing attempts to eliminate all waste, including time. Lean manufacturing focuses on resource efficiency and high performance. Agile manufacturing can react quickly to changing consumer demand and quickly change production, making highly customizable products available to consumers. However, this agility can increase manufacturing and transportation costs.
To review, see Modeling Lean and Agile Approaches: A Western Canadian Forest Company Case Study.

9c. Analyze the efficiency and responsiveness of a given supply chain with performance metrics 

  • What are some key factors affecting supply chains?
  • Why is it necessary to assess each partner's performance in the supply chain?

Our business landscape is rapidly changing. Globalization, uncertainty, growing competition, more demanding customers, disruptions to supply chains, and pressure to cut costs are just a few characteristics we face. Measuring, tracking, and managing supply chain processes is critical. Performance management (PM) relates to applying processes, methods, metrics, and technologies to create an effective and efficient supply chain.
To keep costs down and efficiency high, it is necessary to assess each member company within the supply chain and assess the entire supply chain. These assessments are completed to eliminate waste within the supply chain and meet the requirements of the end customer.
Many PM systems do not work for supply chain analysis. Most PM systems focus on one organization, not the multilayered organizations that make up a supply chain. Additionally, most PM systems use historical data; supply chains need to look forward with predictive analytics. Finally, most PM systems focus on business areas other than the supply chain, such as internal, financial, and functional systems.
Using powerful algorithms, a unified, predictive PM system can be built to provide information about what will happen (forecast). Additionally, the PM system can explain why something happened and what should be done to resolve performance problems. As a unified system, all supply chain members provide and receive data from all other members in the chain.
To review, see Proactive Supply Chain Performance Management with Predictive Analytics.

9d. Illustrate the bullwhip effect through consumer-to-producer analyses of increasing order variability 

  • What is the bullwhip effect?
  • What cause and effect can the bullwhip effect have on a supply chain?
  • Can the bullwhip effect be decreased?

The bullwhip effect in supply chains is used to describe fluctuating inventory due to demand changes. These fluctuations start small but can generate much larger problems up or down the supply chain. This phenomenon is named the bullwhip effect because when an individual snaps their wrist while holding a whip, it creates fluctuating wave effects that increase in size.
The bullwhip effect can be caused by imperfect forecasting methods, gaming among companies when demand exceeds supply, and price variations that cause supply chain members to over-order when the price is low. The consequences of the bullwhip effect include higher inventory levels, agility reductions in the supply chain, a decrease in customer service levels, ineffective transportation, and missed production schedules.
In one study, researchers evaluated the bullwhip effect in a system with one manufacturer and two retailers (one traditional store and one online store). In this study, the researchers analyzed nonlinear characteristics of the supply chain with consumer return. In China, where this study was done, online retailers must provide a 7-day return policy, while traditional stores do not have this return policy. Using a simulation, the researchers compared the bullwhip effect with different iterative states. Their conclusions show that the profit of the traditional store will be reduced with the growth of the online retailer's return rate. Using statistical analyses, the manufacturer can help the online retailer maintain a low return rate; otherwise, the profits of the traditional retailer will be reduced. While this study was only a simulation with very strict parameters (one manufacturer and two retailers), it does provide a process whereby manufacturers can help the supply chain maintain profits for the entire chain.
To review, see Bullwhip Entropy Analysis and Chaos Control and Information Coordination in Supply Chain Systems.

Unit 9 Vocabulary 

This vocabulary list includes the terms that you will need to know to successfully complete the final exam.

  • agile manufacturing
  • bullwhip effect
  • lean manufacturing
  • performance management