Causes of the Bullwhip Effect - A Study based on the Beer ...

Supply Chain World Europe 2002,28-30 October, 2002, AmsterdamProf. M. BaertschiWhat is the BullwhipEffect caused by?Study based on theBeer Distribution Game onlineProf. Dr. P. SchönslebenICHJörg Nienhaus (email: Joerg.Nienhaus@ethz.ch)ÜRZSwiss Federal Institute of Technology (ETH) ZürichLogistics and Information ManagementBWI©2002 by SCM GroupAgendaPart I What is the Bullwhip Effect?What are reasons for the Effect?Prof. M. BaertschiPart IIThe Beer Distribution Game:Simulating a Supply Chain Part IIIWhat is the Role of Human BehaviorProf. Dr. P. Schönslebenin the Bullwhip Effect? (Study basedon the Beer Distribution Game online)ICHÜRZPart IVHow can Supply Chains copewith the Effect?BWI©2002 by SCM GroupThe Bullwhip EffectOrders and Stocks in a Supply ChainOEM1st Tier2nd Tier3rd TierProf. M. BaertschiProf. Dr. P. SchönslebenICHInformation (Orders)ÜRZMaterialBWI©2002 by SCM GroupThe Bullwhip EffectOrders and Stocks in a Supply ChainOEM1st Tier2nd Tier3rd TierProf. M. BaertschiObservations:Variation of stocks and orders increases upthe supply chain from customer to supplier.The longer lead times of information and material Prof. Dr. P. Schönslebenare, the stronger the effect is.ICHFamous example:ÜRZDemand for Pampers disposal diapers, analyzed and published by Procter&GambleBWI©2002 by SCM GroupThe Bullwhip EffectMain Reason for the Effect: It is inherent in the System!CurrentProf. M. BaertschiDemandCurrentProduction1‘000Level1‘2001‘0001‘0001‘000Prof. Dr. P. SchönslebenStock to meetEffect is caused by lead time:Demand• If customer demand sinks, the ICHsupplier needs to empty its pipeline ÜRZto avoid high capital costs.• If it raises, pipeline needs to befilled to avoid backlog.BWI©2002 by SCM GroupThe Bullwhip EffectSecondary Reasons for the EffectProf. M. BaertschiPlanning:• Changing forecasts lead to changing safety stocks. Suppliers not only react on changed demand, they adapt the level of safety stock. Thus variability increases.• Procurement in batches adds variabilityBehavior:Prof. Dr. P. Schönsleben• Variability of prices (especially: promotions) has an effect on variability of demand. ICH• Facing shortage of supply customers tend to order more ÜRthan their actual demand. After shortage is over, Zcancellations occur.Simchi-Levi, Kaminsky (2000): Designing and Managing the Supply Chain, p. 82BWI©2002 by SCM GroupAgendaPart I What is the Bullwhip Effect?What are reasons for the Effect?Prof. M. BaertschiPart IIThe Beer Distribution Game:Simulating a Supply ChainPart IIIWhat is the Role of Human BehaviorProf. Dr. P. Schönslebenin the Bullwhip Effect? (Study basedon the Beer Distribution Game online)ICHÜRZPart IVHow can Supply Chains copewith the Effect?BWI©2002 by SCM GroupThe Beer Distribution GameIdea: A simple Simulation of a Make-to-Stock Supply ChainProf. M. BaertschiRetailerWholesalerDistributorFactoryInformation (Orders)Prof. Dr. P. SchönslebenMaterialICHGoal: To miminize cost of capital employed in stock whileÜRavoiding out-of-stock situations.ZCosts: 0,50 € per product on stock per round1,00 € per product, that could not be deliveredBWI©2002 by SCM GroupThe Beer Distribution GameHow much to order from your supplier?Prof. M. Baertschi Order receivedTaking into accountfrom customer• outstanding orders• products in transfer• and on stockHow many products doesProf. Dr. P. Schönslebenmy company need tomeet future demand?ICHÜRZ Products ... on stock... in transport... being receivedBWI©2002 by SCM GroupThe Beer Distribution GameResults are surprising…Prof. M. BaertschiOrdersStocksProf. Dr. P. SchönslebenICHÜRCustomerZRetailerWholesalerDistributorFactoryBWI©2002 by SCM GroupDocument Outline

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