BULLWHIP EFFECT

Bullwhip effect is a condition that occurs in the supply chain where customer demand is changing. These changes resulted in a series of effects that would disrupt the supply chain. Lack of coordination in the exchange information between retail, distributors, and companies can lead to bullwhip effect.

A simple example is the story of a greengrocer below as written by Mr. Windede.
By using mobile phones, now housewifes send short messages to greengrocer at night or a day before. So no more  housewifes who live  at the end of the aisle miss his favorite vegetable. The greengrocer now bringing the vegetable based on the short messages orders.

The greengrocer has been transforming the way vegetable business from the "bring to stock" to "bring to order". Before he take advantage of this way, he should purchase the stock in the market without knowing the needs of the housewifes. Sure he did "forecast" what and how much should be purchased in the market for later taken to the customers. With this method, it is definitely "forecast error" which resulted not only in him but also his customers. He can over stock because the goods he brings is not necessarily desirable to be cooked by housewifes of that day. Instead of housewifes can not get what he wants. With SMS, the greengrocer now only bring goods to order. Over-stock can be minimized. Its service level to be increased.  Housewifes don’t need  to worry about running out of stock. So both parties benefited. Even, with a little creativity, the greengrocer could provide a lower price for customers.

This is one clear example of the role of information in the "Supply Chain Management". Hau Lee of Stanford University describes mathematically how the lack of information can cause chaos in the supply chain. Starting from suppliers, manufacturers, Distributors, wholesalers, retailers and certainly consumers who will suffer the consequences in the form of high cost or unavailability of goods. It is observed the first time when it appeared a very interesting phenomenon in its infant diaper products P & G (Procter & Gambel). Consumption of this product in the final consumer level (the baby) is very stable with flat demand without significant spike. Strangely when demand patterns are drawn back to the factory level, it seems to occur a very sharp spike, and spike in the increasingly crowded when it comes to the level most distant from the consumer end. This phenomenon is commonly called the "bullwhip effect". Which if interpreted simply is a phenomenon whereby a small spike in the consumer level will lead to a very sharp spike in the level that is far from consumers.

What a result of these spikes? Lots include, among others excess stock inventory, because demand is actually much smaller, chaotic production schedule, not an optimal production of utilization facilities etc..

Back to the greengrocer before, if only it could be forwarded sms to middlemen in the market, continues to suppliers and so on, could be a wholesale market is not shabby. The middleman in the market role in vegetable trade chain can be increased, from just receiving from suppliers continue to forward it to the greengrocer, they can give value to a product with packaging made to order.