Counteracting the bullwhip effect
To improve the responsiveness, accuracy, and efficiency of the supply chain, a number of actions must be taken to combat the bullwhip effect:
- Make real-time end-item demand information available to all members of the supply chain. Information technologies such as electronic data interchange (EDI), bar codes, and scanning equipment can assist in providing all supply chain members with accurate and current demand information.
- Eliminate order batching by driving down the costs of placing orders, by reducing setup costs to make an ordered item, and by locating supply chain members closer to one another to ease transportation restrictions.
- Stabilize prices by replacing sales and discounts with consistent “every-day low prices” at the consumer stage and uniform wholesale pricing at upstream stages. Such actions remove price as a variable in determining order quantities.
- Discourage gaming in rationing situations by using past sales records to determine the quantities that will be delivered to customers.
Other factors affecting supply chain management
In addition to managing the bullwhip effect, supply chain managers must also contend with a variety of factors that pose on-going challenges:
- Increased demands from customers for better performance on cost, quality, delivery, and flexibility. Customers are better informed and have a broader array of options for how they conduct business. This puts added pressure on supply chain managers to continually improve performance.
- Globalization imposes challenges such as greater geographic dispersion among supply chain members. Greater distances create longer lead times and higher transportation costs. Cultural differences, time zones, and exchange rates make communication and decision-making more difficult. Boeing and Airbus have discovered the downside of sourcing from global suppliers. Much smaller suppliers of kitchen galleys, lavatories, and passenger seats have been unable to fulfill orders from Boeing and Airbus, leaving the latter unable to deliver planes to its airline customers.
- Government regulations, tariffs, and environmental rules provide challenges as well. For example, many countries require that products have a minimum percentage of local content. Being environmentally responsible by minimizing waste, properly disposing of dangerous chemicals, and using recyclable materials is rapidly becoming a requirement for doing business.
Supplier selection
Choosing suppliers is one of the most important decisions made by a company. The efficiency and value a supplier provides to an organization is reflected in the end product the organization produces. The supplier must not only provide goods and services that are consistent with the company’s mission, it must also provide good value. The three most important factors in choosing a supplier are price, quality, and on-time delivery.
A company must not only choose who it wants as a supplier, it must also decide how many suppliers to use for a given good or service. There are advantages to using multiple suppliers and there are advantages to using one supplier. Whether to single-source or multiple-source often depends on the supply chain structure of the company and the character of the goods or services it produces.
