Bullwhip Effect External Demand Order Variability Up the Pampers Supply Chain Retailer Order lead time Delivery lead time Wholesaler 一讯 Order lead time Delivery lead time Babies Customers Retailers Wholesalers P&G 3M Distributor Order lead time Delivery lead time Factory Production lead time SEIEE AU406
SEIEE AU406 + - Bullwhip Effect Order Variability Up the Pampers Supply Chain
Effect of Order Variability Order variability in the supply chain Volume 80 70 60 Factory 50 □ Distributor Time PC 40 口 Wholesaler Retailer Volume 30 Customer 20 10 13579111315171921 Time in a Year Week Chicken Noodle Soup Order Demand SEIEE AU406
SEIEE AU406 + - Effect of Order Variability Order Demand
Factors that Contribute to the variability-Demano Forecasting Periodic review policy Characterized by a single parameter,the base-stock level. Base-stock level Average demand during lead time and review period a multiple of the standard deviation of demand during lead time and review period (safety stock) Estimation of average demand and demand variability done using standard forecast smoothing techniques. Estimates get modified as more data becomes available Safety stock and base-stock level depends on these estimates Order quantities are changed accordingly increasing variability SEIEE AU406
+ - SEIEE AU406 Factors that Contribute to the Variability - Demand Forecasting Periodic review policy Characterized by a single parameter, the base-stock level. Base-stock level = Average demand during lead time and review period + a multiple of the standard deviation of demand during lead time and review period (safety stock) Estimation of average demand and demand variability done using standard forecast smoothing techniques. Estimates get modified as more data becomes available Safety stock and base-stock level depends on these estimates Order quantities are changed accordingly increasing variability
Factors that Contribute to the variability- Lead Time Increase in variability magnified with increasing lead time. Safety stock and base-stock levels have a lead time component in their estimations. With longer lead times: a small change in the estimate of demand variability implies a significant change in safety stock and base-stock level,which implies significant changes in order quantities leads to an increase in variability SEIEE AU406
+ - SEIEE AU406 Increase in variability magnified with increasing lead time. Safety stock and base-stock levels have a lead time component in their estimations. With longer lead times: a small change in the estimate of demand variability implies a significant change in safety stock and base-stock level, which implies significant changes in order quantities leads to an increase in variability Factors that Contribute to the Variability – Lead Time