the bullwhip effect

Bullwhip effect

Bullwhip effect as indicated by Chen et al. (2000) has been one of the major logistics malfunction within the supply chain activities. So one may ask what bullwhip effect is. This described by Forrester (1958) as a phenomenon where by the large food retailers (downstream) increases its levels of orders to the manufacturer through the first and second tier suppliers (upstream) whereas there is miniature variation indicated in the final demand. This due to the fact that information flow was partially or ineffective communicated to aid in planning of the logistics activities resulting in the backlog. On the other hand, the firms within the supply chain may misinterpret the information differently leading to excess or shortage in future demand.

Paik and Bangchi (2007) based on research conducted also identified one of the main causes of the bullwhip effect as the level of echelon. This adding more tiers into a supply chain which elongates the parties in arriving at a decision point and sometimes hinders collaborative relationship. The repercussion is that the lead-time in the supply chain also increases the information and material flow resulting in demand distortion.

However Paik and Bangchi (2007) concluded that the key to diminish the bullwhip effect is by building strong relationship in the supply chain through effective information sharing strategies and efficient coordination of operational activities with the partners involved. Fransoo and Wouters (2000) also suggested that transferring the aggregate retail orders through electronic point of sale (EPOS) data which eases information flow can reduce the effect of bullwhip effect.

However Vereecke and Muylle (2006) argued that the effort in collaborating between customers and suppliers in the supply chain does not always bring about improvement unless potential partners are identified and drawn into the supply chain because changes in the environmental factors also plays a major role in determining the potential partners to make collaboration successful. Examples of the factors include the suppliers' commitment, magnitude of communication and attitudinal factor such as trust (Krause, 1999).

Power

Define business power

Cox (2001) argued that any of the parties (supplier or customer) who exert power within the supply chain hinders collaborative relationship. This is in accord with Coulson-Thomas (2005) who stipulated that large firms use their superiority and wealth to influence the first and second tiers suppliers in the supply chain thereby preventing the suppliers involved to collaborate with small firms.

More recently, Caniels and Gelderman (2007) stated that the existence of imbalance in power is still found among the companies that are effectively collaborating in the supply chain because there will be a party that will dominate in the partnership and can manipulate the decisions suppliers or customers (Arshinder et al., 2008). Find case study

However Fowcett and Magnan (2002) argued that the existence of those relations and its impact on performance brings problem into the business world by way of monopolizing the business. For example in the retail sector, coca cola (Christopher, 2005 cited in Wilding and Humphries, 2006).

Lane and Bachmann (2003) stipulated that in the business environment some companies that have recognise the benefits of the effort of supply chain collaboration uses their power to hide behind the facade of trust to persuade or manipulate other smaller suppliers to promote their vested interest. And most a times when they secure an office at the regional or national level within the industry of operations, they create policies that will reduce the chances of their competitors becoming productive and profitable.

Can collaboration happen

Would short product life cycle lead to intensive collaborative practices.

REFERENCES

Arshinder, K.A. and Deshmukh, S.G (2008) Supply chain coordination perspective, empirical studies and research direction, International Journal of Production Economics, Vol. 115, No. 2, pp.316-315

Caniels, C.J. and Gelderman, C.J (2007) Power and interdependence in buyer supplier relationships: a purchasing portfolio approach, Industrial Marketing Management, Vol. 36, No. 2, pp. 219-229

Chen, F., Drezner, Z., Ryan, J. and Simchi-Levi, D. (2000) Quantifying the bullwhip effect in a simple supply chain: the impact of forecasting, lead-times and information, Management Science, Vol. 46, No. 3, pp. 436-443

Cox, A. (2001) Understanding buyer and supply power: a framework for procurement and supply competence, The Journal of Supply Chain Management, Vol. 37, No. 2, pp. 8-15

De Leeuw, S. and Fransoo, J. (2009) Drivers of close supply chain collaboration: one size fits all? Internal Journal of Operations and Production Management, Vol. 29, No. 7, pp. 720-739

Forrester, J. (1958) Industrial dynamics: a major breakthrough for decision makers, Harvard Business Review, Vol. 36, No. 4, pp. 37-66

Fransoo, J.C. and Wouters, M.J. (2000) Measuring the bullwhip effect in supply chain, An International Journal of Supply Chain Management, Vol. 5, No. 2, pp. 78-89

Krause, D.R. (1999) The antecedents of buying firms' effort to improve suppliers, Journals of Operations Management, Vol. 17, No. 2, pp. 205-224

Lane, C. and Bachmann, R. (2003) Trust within and between organisations. Conceptual Issues and Emperical Applications, Emerald Journal, Vol. 32, No. 5, pp. 667-671

Paik, S.K. and Bangchi, P.K. (2007) Understanding the causes of the effect in a supply chain, International Journal of Retail and Distribution Management, Vol. 35, No. 4, pp. 308-324

Vereecke, J. and Muylle, S. (2006) Performance Improvement through supply chain collaboration in Europe. Internal Journal of Operations and Production Management, Vol. 26, No. 11, pp. 1176-1193

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