Information Distortion & Bullwhip Effect

1. Information Distortion & Bullwhip Effect Rahmi Yuniarti,ST.,MT Anni Rahimah, SAB,MAB FIA - Prodi Bisnis Internasional Universitas Brawijaya

2. The Bullwhip Effect – Distorted Information The amplification of uncertainty and order overstatement that cascades upstream through the nodes of the supply chain. The variance of orders is greater than that of sales, and the distortion increases as one moves upstream.

3. The Bullwhip Effect – Distorted Information • Fluctuation in orders increase as they move up the supply chain • Demand information is distorted as it travels within the supply chain, so that different stages have different perspectives and estimates of the chain demand • Examples: • Proctor & Gamble Pampers diapers • HP printers

4. Permintaan yang sebenarnya relatif stabil di tingkat pelanggan akhir berubah menjadi fluktuatif di bagian hulu supply chain dan semakin ke hulu peningkatan tersebut semakin besar. Fenomena ini dinamakan dengan bullwhip effect.

7. Information is Distorted and late, make inappropriate response Day 1 Promotion takes place Day 5, stock run out, order larger and earlier than normally Day 7, distributor deliver larger and earlier Day 10, distributor runs out of stock, order larger quantity to factory Day 8, promotion ends Day 11, factory increase production volume through overtime Day 17, distributor receives large delivery from factory Day 20, retailer receives large delivery from distributor, while demand disappear

8. Demand @ Retailer Inventory @ Retailer

9. Variabilitas order

10. The Bullwhip Effect

11. The effect of lack of coordination on performance • Manufacturing cost  • Inventory cost  • Replenishment lead time  • Transportation cost  • Labor cost for shipping and receiving  • Level of product availability  • Relationships across the supply chain • Profitability  • Remark: All of the above essentially result from the increased variability experienced by certain parts of the supply chain, due to information distortion and lack of coordination.

12. Impact of Bullwhip • High inventory/lost sales/backlog cost • Low operational efficiency • - underutilization • - overtime • Unnecessary capacity investment • Swings in working capital • Blaming others; frustration, helplessness

13. Bullwhip dapat menyebabkan masalah dalam rantai pasokanantara lain: • persediaan yang berlebihan di seluruh rantai suplai keseluruhan; • perkiraan produk yang buruk, • kapasitas yang tidak cukup atau berlebihan; • layanan pelanggan yang buruk karena ketidaktersediaan produk atau backlogs panjang; • perencanaan produksi yang tidak pasti; • biaya yang tinggi untuk koreksi ; dsb.

14. Bullwhip Causes and Countermeasures

15. Bullwhip Causes and Countermeasures (cont.)

16. Fast and Rich Information sharing Information is distorted and late order order order Distributor Retailer Factory Wholesaler Information is fast and more accurate, factory reacts more responsively Distributor Retailer Factory Wholesaler Demand, stock level, events, irregular patterns, etc.

17. Avoiding the ‘Bullwhip’ effect • Information sharing • Channel alignment • Operational efficiency

18. Collaborative Planning, Forecasting and Replenishment (CPFR) Traditionally : • Each function and each supply chain channel could have different forecast figures • Plans are developed in isolation from other supply chain channels • Minimal communication and coordination between channels takes place for corrective actions when actual production deviates from the plan

19. COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT • CPFR involves suppliers, customers, information sharing, consensus building to reach agreements on forecasts, production, deliveries, and purchases. • Reduces bullwhip effect, inventories, stockouts, costs. • Challenges—trust, commitment

20. Collaborative Planning, Forecasting and Replenishment (CPFR) PRINSIP : • SC channels menggunakan forecast yang sama untuk seluruh kegiatan mereka • Mereka juga meng-exploit supply process constraint

21. Kenapa CPFR penting ? • Setiap channel punya informasi yang berbeda (kalau informasi tersebut dibagi, akurasi forecast bisa ditingkatkan) • Contoh : setiap channel punya program promosi yang berbeda, sedangkan manufaktur punya keterbatasan kapasitas

22. A Leading Pilot • Wal-Mart vs Warner Lambert • Now Wal-Mart is engaged with some 600 trading partners • Benefits : • Promotional planning improvements • Service level increases • Reduction in inventories • Better warehouse utilization • Better capacity allocation

23. BE A GREAT PLANNER.. What You See Is Not WhatThey Face FAILING TO PLAN MEANS ... PLANNING TO FAIL