The whip effect in real firms. Increased demand (Forrester effect, whip effect). Convenient, understandable and clear handout material, easy to understand. And how convenient it is to teach buyers and sellers that communication, and not your own instinct, can

Beer game (Beergame) described by Peter Senge in The Fifth Discipline. Using the example of beer supplies, a distribution chain is modeled with four stages of supply: retailer, wholesaler, distributor and producer. For each seller there is one, but preferably two or three players. Thus, the entire supply chain is typically played out by 8-12 players. The master can control several circuits in one class at the same time. It is possible to record the results of each move manually in a special table, or you can use the online resource with the game.

A task

The challenge for the supply chain is to produce and deliver beer to the end consumer: the factory produces and the other three links in the supply chain promote the beer until it reaches the end consumer at the end of the supply chain.

The goal of the players is simple: each link must regularly fulfill the incoming orders for beer.

Structure

Orders flow upward to the manufacturer, while supply flows down the supply chain to the retail customer (see Figure 1).

An important element of the game is the time delay for order fulfillment, which is made up of the time for delivery and production of the goods. Each delivery (and production order) requires two rounds until they are finally delivered to the next link (see Figure 2).

Play

The game is played in rounds that simulate weeks.

Using the materials (see picture 2), players must complete the following steps in each round:

take orders from your clients;
receive goods from your supplier;
update the game table;
send goods to your client further along the chain;
place a new order with your supplier.

The choice of order quantity in each round is the only solutionwhich the players accept as the game progresses.

rules

Each order must be completed right now (level commodity stock players must be large enough), or later in subsequent rounds.

Stocks in stock and delays (unfulfilled orders) incur costs - each item in stock costs 0.5 EURO per week, while every item in delay costs 1.00 EURO. Hence, the main goal of every salesperson is to keep their costs as low as possible.

Thus, the optimal strategy of the players is to manage their business with the lowest possible inventory (minimum orders to their suppliers), while avoiding non-fulfillment of orders from their customers.

Players are not allowed to communicate. The only information they are allowed to exchange is the order volume; there is no transparency as to what the stock level or actual consumer demand is; only the retailer knows the external demand.

Consumer demand

External demand is predetermined and usually does not vary significantly. At the start of the game, the supply chain starts with the same stock levels (eg 15 units), order quantities (eg 5 units) and some beer in transit and in production (eg 5 units).

In order to trigger the whip effect, external demand initially remains stable for several rounds (eg 5 units for 5 rounds). It then suddenly increases (a 9 unit jump), then it stabilizes again at that higher level until the end of the game (usually only 52 rounds in terms of the number of weeks in a year, one round lasts less than one minute).

Just one spike in external demand will inevitably create a whip effect and destabilize order placement and fulfillment throughout the supply chain.

Bullwhip effect is a known consequence of coordination problems in traditional supply chains. It is expressed in the fact that even with small variations in retail demand, the level of fluctuations in orders tends to increase significantly downstream in the supply chain. As a result, the total order becomes very volatile [with strong demand], and can be very high this week and almost zero the next. The term was coined around 1990 when Procter & Gamble sensed erroneous order fluctuations in their baby diaper supply chain. The Bullwhip effect is a well-known consequence of coordination problems in traditional supply chains. It is expressed in the fact that even with small variations in retail demand, the level of fluctuations in orders tends to increase significantly downstream in the supply chain. As a result, the total order becomes very volatile [with strong demand], and can be very high this week and almost zero the next. The term was coined around 1990, when Procter & Gamble sensed erroneous order fluctuations in their baby diaper supply chain. As a consequence of the whip effect, problems are present throughout the supply chain:

high (safe) stock level;
poor customer service;
poor capacity utilization;
deepening the problem of forecasting demand;
high prices and low levels of trust within the supply chain.

While the whip effect is not new, it is still a relevant and pressing issue in modern supply chains.

Typical results

To learn from Beergame, it is necessary to collect and study the data obtained by the players. Here are typical results from one game.

Figure 1 shows the distribution of orders over 40 weeks and a typical whip effect. It is becoming apparent that retailers were responding to the surge in consumer demand with a two-week time lag.

In the next step, everyone placed larger orders, each of which increased, thus creating the typical whip effect.

Fluctuation in stock levels

Figure 2 shows the fluctuation in stock levels with negative stock, indicating a backorder.

Obviously, the players are facing a delay in orders. Too sharp a response to demand led to a rapid overstocking of 20-30 weeks.

Summing up the game

Debriefing usually begins with a brief discussion of the students' experiences throughout the game. As a rule, the following issues are discussed:

Have you ever felt like you were out of control?
Have you blamed chain partners for your problems?
Have you felt despair at some point?

This discussion usually shows that people do blame their supply chain partners for not doing their job right (either placing unreasonable orders or failing to deliver your order).

Despair and frustration are common feelings during the last round of the game.

Structure creates behavior

The main takeaway from this discussion is that the structure of the game (i.e. the structure of the supply chain itself) dictates behavior.

Reflecting on the game

The second group of questions can be devoted to a discussion of how Beergame simulates real conditions:

What is unrealistic about this game?
Why are there order delays?
Why are there production delays and delivery delays?
Why are distributors and wholesalers needed? Why can't we ship retail beer straight from the factory?
Does the beer manufacturer have to interact with their raw material supplier?

Please note! By emphasizing the fact that real supply chains are much more complex (there is a huge variety of products and supply chain partners, as well as complex cross-links), students can quickly become convinced that the real conditions are much more conducive to the whip and that the Beer Game really good tool for simulating the whip effect.

The discussion of the results

Usually this discussion leads to a very lively discussion. For example, the concept of "accumulated supply chain costs" is introduced, indicating that until the product reaches the end customer, no one in the supply chain will work; this understanding is the first step in creating the idea of \u200b\u200bglobal thinking and optimization of the entire chain, which essentially require cooperation.

Then you can move on to identifying the causes of the whip effect.

Causes of the whip effect

The whip effect is mainly caused by three basic problems: 1) lack of information, 2) supply chain structure, and 3) lack of cooperation.

Three reasons can be identified in an interactive session with students discussing the Beergame experience and then validated with practice and literature references.

1. Lack of information

In the Beer Game, no information is saved, except for the order size. Consequently, much of the information about consumer demand is quickly lost along the way upstream in the supply chain.

This feature of Beergame simulates supply chains with low levels of trust, where parties share only a minimum of information among themselves. Without actual data on consumer demand, all forecasting must rely solely on incoming orders at every stage of the supply chain. In such a situation, traditional forecasting methods and strategies for maintaining reserves contribute to the whip effect.

2. Supply chain structure

The very structure of the supply chain contributes to the whip effect. We have long time fulfillment of the order, i.e. it takes a long time for the order to arrive upstream and the next delivery to go downstream. The longer it takes, the more likely the whip effect will occur.

Typically, ordering is guided by projected demand over the restocking time, adjusted for safety stock, to ensure a level of service (no stock-outs) until the next order arrives.

Consequently, the longer the replenishment time, the more clearly the order volume will respond to the increase in forecast demand (especially when combined with the need to update the safety stock level, see above), which contributes to the whip effect.

3. Local optimization

Local optimization, expressed as local forecasting and local cost optimization with a lack of cooperation in the supply chain, also underlies the whip effect.

Order lots are a good example of local optimization. In practice, the size of the order is fixed and is determined by the delivery method, since, for example, the cost of delivery for delivery with a full truck or container is lower than for delivery of a smaller volume. In addition, many suppliers offer volume discounts, which encourages large orders.

Consequently, there is a certain incentive for individual players to collect more (and, accordingly, delay some of the orders) from their customers and place only large aggregate orders with their supplier. This behavior, however, worsens the problem of forecasting demand, because each such order contains very little information about the actual demand. And shipping orders in batches certainly does contribute to the whip effect by unnecessarily inflating orders.

Tatiana Meshchankina, Logistics Manager, Chimexpert CJSC

In search of more and more sophisticated forecasting techniques, experts often overlook the fact that such unwanted fluctuations in demand can be not only natural, but also artificial, and therefore can be corrected.
IN traditional systems production and logistics management, all enterprises are considered as isolated elements, independently planning their needs and purchases. In this case, significant deviations and fluctuations arise in the entire logistics chain... Local optimization, inconsistency in the actions of participants in the supply chain and insufficient information exchange lead to the so-called Bullwhip effect.

This effect is a situation in which minor changes end-user demand lead to significant deviations in the plans of other participants in the supply chain (subcontractors, suppliers, etc.). When the Bullwhip effect occurs, the uninterrupted movement of material and information flows in the supply chain is disrupted, thereby causing the risk of non-fulfillment of the customer's order.

IN SEARCH FOR EFFECT

One day, experts at Procter & Gamble wondered why the size of orders received by the company for one of the best-selling products - baby diapers - jumped so much. After all, their consumption by the end customer, that is, by the infant, is uniform and constant. After consistently studying the statistics: 1) sales retail stores, 2) orders received by distributors, 3) orders received by the company from distributors, and finally 4) orders that P&G places with a supplier of raw materials, company managers were surprised to find that the fluctuations in order volume increase as they move up the supply chain. ... This phenomenon has been called the Bullwhip Effect.

CAUSES OF WHIP EFFECT

It was hypothesized that this effect is due to irrational decision-making on replenishment and formation of reserves. That is, when faced with a sharp surge in incoming orders, managers tend to reinsure themselves and, in turn, place such an order so that it will satisfy the increased demand with some margin. When such an overpriced order arrives (naturally, after some time), the surge of interest in the product, as a rule, already gives way to a decline, and an excess of the product is formed in the warehouse. Consequently, the next order will either be postponed until the stock is consumed, or significantly reduced in volume. The supplier of the goods, receiving such uneven orders, in turn makes forecasts with an even wider range of values \u200b\u200band puzzles his supplier of components with even larger jumps. However, a closer look at the problem showed that it is not only the behavioral characteristics of those responsible for determining the need. The Bullwhip effect has a number of objective reasons, among which are:
errors in forecasting demand;
creation of additional insurance stocks by enterprises;
arbitrary increase in the size of consignments;
fluctuations in prices; delays in obtaining the necessary information about needs; deviations from the planned dates and volumes of production and supplies.

INCREASING FORECASTING ERROR

Each company forms its order plan based on forecasting the demand of its customers. As a rule, the forecast is based on historical data. At the same time, statistical data processing techniques extrapolate the data of upward and downward trends a little further, beyond the real limiting points of ups and downs in demand. Taking into account this error, both upward and downward, the company forms its orders to the supplier. At the same time, it also proceeds from the level of its current stocks, subtracting or adding the overestimated or not received volume in the previous order. Accordingly, the supplier, analyzing the time series of the company's orders, predicts its needs with an even greater scatter (Figure 1).
Figure 1. Growth of fluctuations in the volume of orders upwards

CONSOLIDATION OF ORDERS

In real practice, it is very difficult to find a company that would unambiguously transform incoming orders into outgoing ones without processing and generalization (we are, of course, not talking about Just-in-time systems, since their use requires special conditions). The demand of the company's customers forms the input data for the inventory management system, which at the output gives a decision about when and how much goods should be purchased. Typically, customer orders are consolidated down to the minimum lot size, which can correspond to either the optimal order size or the load rate vehicle (truck, wagon, container). The larger the size of such an order and, accordingly, the less often the order is made, the greater the degree of its rejection will be.

On the other hand, when analyzing the demand of its customers, a company can observe large jumps, on the basis of which it will subsequently be concluded that a high degree of demand uncertainty is. In fact, the company does not analyze the total demand of its customers, but the flow of applications, each of which is formed based on individual replenishment systems. In this case, the "transformed" demand has a pronounced unevenness, which is shown in the figure

RESULT OF PRICE POLICY

Excessive fluctuations in demand can be triggered by the company's pricing policy. Periods of price reduction or holding special promotions usually attract a lot of clients who, in a rush to extract maximum benefit speculative stocks are formed from the “dropped chance”. Naturally, there is an imminent decline in orders after the end of the promotion as customers start to use up their inventory, possibly waiting for the next discount period.
The Western press also mentions situations when, in conditions of shortage, clients submit deliberately overstated bids in response to the policy of partial execution. And when the level of supply finally catches up with demand, a series of canceled orders follows. The same picture was typical for the Soviet supply system, however, in modern market conditions, the repetition of this model is hardly possible.

PREVENTIVE MEASURES

The bullwhip effect has an extremely negative impact on the efficiency of operations of participants in the supply chain, primarily because it provokes the accumulation of excessive insurance stocks at each participant in the chain. Therefore, the development of measures to smooth out this effect today is one of the urgent tasks of logistics. There are several approaches to its solution.

USE OF ADVANCED TECHNOLOGIES

This approach is based on a complex information interaction between participants in the supply chain, which allows for automated analysis of final demand. For example, if a manufacturer will have access to sales data for their products directly from sales areas, then it will not be difficult for him to predict how much he should ship to the distribution center supplying this retail network... This technology is implemented by WalMart.

Among the problems of interorganizational coordination, “many companies note the Bullwhip effect or the Forrester effect, in which there are different variations in demand from the end user towards the existing links in the an increase in the level of security and reliability of the supply chain, which leads to an increase in the level of stocks, distortion of the forecast estimates of the needs and consumption of participants in the chain.

An example is the situation at Hewlett Packard. It was found that fluctuations in orders increased significantly as we moved from resellers up the supply chain to the printer division and on to the integrated circuit division. It was also noted that while demand for the product fluctuated somewhat, orders for the integrated circuit division varied significantly more. This made it difficult for HP to fill orders over time, and also increased the cost of fulfilling them.

We also note that a similar phenomenon, the whip effect, takes place in the field of trade in consumer goods. So fluctuations in orders increase as they move upstream in the supply chain from retail to production; in such a way that orders to the manufacturer vary much more than demand retail buyer, which is reflected in Figure 1.1.

The objective reasons for the appearance of the whip effect can be identified as follows:

* forecasting needs: the process of making forecasts based on real and accurate information required for forecasting. If orders are placed based on valid demand forecasts from upstream suppliers, there is a distortion of demand information. The supplier loses the ability to realistically assess market requirements. The production plan is based on unavoidable, ineffective and distorted requirements, where the impact of distortion increases sequentially with the number of daisy-chained enterprises in the supply chain;

behavior policy: influencing factors are strategic behavior when placing customer orders. In this case, distortion of information about needs may come from strategic decisions of clients;

linking needs: in order volume planning, everyone strives to achieve economic optimum. In this case, several periods are combined. This can lead to misinterpretation of future needs and distortion of information about the true need;

price variations: price changes, for example, as part of the promotion of a product to the market, act as an incentive or disincentive to purchase and, thus, cause fluctuations in demand within the supply chain.

The whip effect obviously affects the supply chain, let's take a closer look at how this effect affects costs in the supply chain.

First of all, this effect increases production costs in the supply chain, as a result of which the manufacturer of the goods and his suppliers try to satisfy the flow of orders, which varies much more than demand. end consumers... And a manufacturer can respond to increased demand by building excess capacity or purchasing additional production lines, or by stocking and stockpiling. And in fact, and in another case, the cost per unit of production increases.

Further, the whip effect increases the replenishment time in the supply chain. The increased variance as a result of the whip effect makes planning at the manufacturer's and its suppliers more difficult compared to the demand situation. There are times when the available capacity and stocks do not allow all incoming orders to be fulfilled. This is a consequence of the longer replenishment times within the supply chain from both the manufacturer and its suppliers.

Third, the whip effect increases transport costs within the supply chain. The transportation needs in time for the manufacturer and its suppliers are related to the orders being executed. As a result of the whip effect, transportation needs also fluctuate significantly over time, which indirectly increases the cost of transportation, as excess transportation capacity needs to be serviced during periods of high demand.

Fourth, the whip effect increases labor costs associated with shipping and receiving in the supply chain. The staffing requirements for shipping from the manufacturer and suppliers will fluctuate depending on the number of orders. Similar fluctuations will occur with the staffing requirements of distributors and retailers. Different links can choose: contain redundant labor resources or use variable labor in response to fluctuations in orders. Any choice increases the total cost of wages.

Fifth, the whip effect negatively affects the functioning of each link and therefore damages the relationship between the various links in the supply chain. There is a tendency to attribute the blame to other links in the supply chain, as the people involved in each link believe they are doing as well as they can. Therefore, the whip effect leads to a loss of trust between the various links in the supply chain and makes any coordination effort difficult.

In addition, we note that the whip effect is detrimental to the product itself, in terms of its availability, and leads to the absence of a product within the supply chain. Large fluctuations in orders make it less likely that a manufacturer will be able to fulfill orders from all distributors and retailers on time. This, in turn, increases the likelihood that retailers will sell off their entire inventory with lost sales from empty shelves.

From all of the above, it follows that the whip effect, and as a result, the lack of coordination negatively affects the functioning of supply chains. This effect removes the supply chain from the efficient level, increasing costs and reducing the ability of the chain to respond to changes in environment... At the same time, the whip effect reduces the profitability of the supply chain by increasing its value in order to ensure a given level of product availability.

To manage and reduce the impact of the above effect in the supply chain, the following methods are most often used:

reducing the level of instability in the chain is carried out by centralizing information, each level of the chain of creation material values and benefits are provided with complete and high-quality information about the actual demand from customers;

reducing order variations by synchronizing ordering cycles and agreeing on options for promoting a product to the market;

strategic partnerships within the supply chain.

However, the whip effect is not the only problem preventing the coordination of supply chain participants. The main barriers to inter-organizational coordination fall into the following five categories:

motivational barriers;

information processing problems;

operational problems;

price barriers;

problems associated with the behavior of managers.

At the same time, the task of the manager is to identify the key obstacles and then take action to remove these obstacles. Let us dwell on these problems in more detail.

1. Motivational obstacles. Motivational barriers arise from the fact that the motives behind the actions of different parts of the supply chain lead to actions that increase variability and reduce the overall profit of the supply chain. For example, local optimization within functional units or links in the supply chain. Problems of this kind will be discussed in more detail in a later chapter.
2. Information processing problems refer to situations where the required information is distorted as it moves between different links in the supply chain, leading to increased variability in orders within the supply chain. The most common problem of this kind is forecasting based on orders rather than consumer demand.

When forecasts are based on orders received, any change in customer demand will increase as orders move up the supply chain to manufacturers and suppliers. This is a manifestation of the whip effect in supply chains, when placed orders are the main means of communication between different links. Each link views its primary role in the supply chain as fulfilling orders from downstream partners. Thus, each link judges their needs based on the flow of orders received and generates a forecast based on this information.

In this scenario, a small change in customer demand becomes exaggerated as it moves up the supply chain in the form of consumer orders. Consider the impact of a random increase in consumer demand from a retailer. A retailer may interpret some of this random increase as a trend in demand growth. As a result, the retailer will order much more than the observed increase in demand, as it expects the growth to continue and orders to cover the expected demand. The increase in the order placed by the wholesale company also exceeds the observed increase in the demand of the retailer. Part of the increase is only one-time growth. The wholesaler, however, will not be able to correctly interpret the increase in the order. He simply observes the jump in order size and concludes that the trend is growing. The growing trend implied by the wholesale company will be larger than the trend implied by the retailer. The wholesaler will thus place an even larger order with the manufacturer.

The lack of communication between the links in the supply chain also increases the whip effect. For example, a retailer might increase the size of an individual order due to a planned advertising company... If a manufacturer is unaware of a planned promotion, he can interpret the increase in order as a constant increase in demand and place orders with suppliers. The manufacturer and suppliers thus have large inventories at the time the retailer has finished its advertising campaign... Subsequent orders from the retailer will return to normal levels, and the manufacturer will accumulate excess inventory, and his orders will be less than before.

3. Operational issues relate to activities related to placing and fulfilling orders that result in an increase in variance. It has already been mentioned that high volume orders significantly impede the activities of the upstream participants in the supply chain. At the same time, the whiplash effect negatively affects the retailers themselves. Thus, in the chain, a situation often arises in which high-demand products are available from retailers in insufficient quantities. For example, the HP company faced in its activities such situations when the demand for its the latest products far exceeded the supply. In this case, the manufacturer resorts to the acceptance of rationing the supply of scarce products among various distributors and retailers. The rationing scheme involves the allocation of possible product deliveries based on placed orders. Under this scheme, if delivery is possible, for example, 75% of the total number of orders received, each retailer receives 75% of his order.

The result of this rationing scheme is the fact that retailers are trying to increase the size of their orders in order to increase the quantity of goods shipped to them. A retailer in need of 75 units will order one hundred units in the hope that 75 units. will be available to him. The negative effect of this distribution scheme is to artificially inflate product orders. This means that a retailer ordering based on how much it expects to sell will gain less and lose sales, while a retailer who overestimates its order will benefit.

If a manufacturer uses orders to predict future demand, he will view the increase in orders as an increase in demand, even if the customer's demand is constant. Then the manufacturer can respond by creating enough capacity to fulfill all the orders received. Once such capacity becomes available, orders return to their normal levels as they have been inflated in response to the rationing scheme.

4. Pricing issues are associated with a situation in which pricing policies increase the volatility of orders placed.

For example, discounts based on order size increase the volume of individual orders placed in the supply chain. As discussed above, the resulting large order further increases the whip effect in the supply chain.

Price fluctuations: Promotional promotions and other short-term discounts offered by the manufacturer result in forward sales in which wholesale companies or a retailer buys a large lot during a discount period to cover future needs. Forward purchases result in large orders during the promotion period, after which orders drop sharply.

Note that consignments during the peak period are higher than sales during that period due to the ongoing sales promotion. The peak batch period is followed by a period of extremely small batches from the manufacturer, showing significant growth in sales by distributors. Sales promotion promotions thus result in volatility in manufacturer's shipments that is significantly higher than volatility in retailer sales.

5. Behavioral problems relate to the way the supply chain is built and the communication between different links. Some behavioral barriers can be identified:

each link in the supply chain considers its activities locally and does not see its impact on other links;

different parts of the supply chain react to the current local situation rather than determine the root causes;

different parts of the supply chain based on local analysis shift the blame for deviations on each other, becoming enemies rather than partners;

while no link in the supply chain examines the effects of activities over time, the most significant impacts of activities at any link appear elsewhere. The result is a vicious circle in which the operations performed by the link create

a lot of problems, for these problems each link blames everyone else, but not itself; “The lack of trust between partners forces them to resist the costs of operating a common supply chain, and it also leads to a significant increase in efforts. And most importantly, due to the lack of trust, the information at the disposal of various links is either not disseminated or ignored. the obstacles and challenges that arise at the interorganizational level can be focused on actions to overcome them and achieve coordination in the supply chain, which will be discussed in the next chapter.

As mentioned earlier, the whip effect is a phenomenon in supply chains that amplifies the amplitude of fluctuations in demand or order volume as the distance from the actual source of demand in the supply chain increases. This means that fluctuations in the supply chain closer to the consumer are much weaker compared to the other side of the supply chain closer to the manufacturer or supplier.

Fluctuations in demand are amplified as the supply chain moves from a retailer to a complete supply chain, such as a supplier. It should be noted that the more counterparties in the supply chain, the more extensive the whip effect acts, namely, the lead time increases.

The more links in the supply chain and the longer the lead time, the greater the fluctuation amplitude. For the first time this term was used by J. Forrester. In the 1950s, he first demonstrated a mathematical model for increasing demand as it moved through the supply chain. The term was coined around 1990 when Procter & Gamble sensed erroneous order fluctuations in their baby diaper supply chain. However, the greatest contribution to the development of the concept of the whip effect was made by H. Lee in 1997 in his work entitled "The bullwhip effect in supply chains". The whip effect has an extremely negative effect on the efficiency of supply chain management, namely, it leads to an excessive increase in insurance stocks, an increase in logistics costs, an unnecessary increase in production costs and overhead, potential product quality degradation, and worse, degraded customer service and lost sales.

As a result of studying chapter 6, the student should:

know

the concept and causes of the whiplash effect in supply chains;
the relationship of the causes of the whiplash effect: the Forrester, Barbidge, Haligan effects;
the negative consequences of the whip effect in the supply chain and how to eliminate it;
defining the concepts of "sustainability" and "reliability" of supply chains;
the impact of sustainability on supply chain performance;
the concept of supply chain flexibility;
principles of supply chain dynamism;

be able to

Determine quantitative parameters of the reliability and sustainability of supply chains;

own

a method of building a flexible and dynamic supply chain.

The whip effect in supply chains and the issue of sustainability

The essence and causes of the whip effect

In traditional business, inventory management is disintegrated, i.e. each company controls the level and consumption of only its own stocks and on this basis places purchase / production orders. Each counterparty in the supply chain, based on data on the current level of only its own stocks and on data on customer orders, tries to adjust the inventory management system in such a way as to ensure regulatory profitability and the desired level of service for its customers (local optimization). Predicting the future consumption of their stocks, each participant in the supply chain is based on data on customer orders placed over a certain period, without taking into account their nature. Not understanding the nature of orders and not having operational information about their consumption (sales), the supplier cannot accurately explain certain fluctuations in demand, as a result of which the so-called culture of guesswork is born ( double-guessing culture), which is the primary reason for the increase in order fluctuations up the supply chain, i.e. the occurrence of the so-called whip effect (Fig. 6.1).

Whip effect (bullwhip effect) Is a relatively new term, first used systematically in relation to DRM in the works of H.L. Lee. This effect is in a situation where the orders received by the supplier from the buyer have more pronounced fluctuations than the buyer's sales to his customers. Further, these deviations with an increase (in the form of a wave) propagate up the supply chain to its initial link, thereby reducing the stability of the supply chain in relation to the optimal level of stocks (Fig. 6.2).

Interpretation of the sustainability of the supply chain in relation to the stock volumes of various counterparties of the chain

Figure: 6.1.

Figure: 6.2.

sov is to maintain a balance of the overall level of stocks in value terms (from the standpoint of optimization working capital) and an acceptable level of customer service (assortment / item required and stock availability) in the supply chain. In relation to the situation shown in Fig. 6.1, the cybernetic analogy with resilience is also appropriate technical systemswhen small fluctuations external factors at the input of the system can cause resonant self-oscillations of the monitored (controlled) parameters of the system and bring it out of the equilibrium state (specified setting).

There are four reasons for the whiplash effect: deviations from the planned production and supply dates and volumes, misinterpretation of demand signals, price fluctuations, and arbitrary increase in the size of shipments. The relationship of these reasons is shown in Fig. 6.3.

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