Factors that Contribute to theVariability- Price FluctuationsRetailersoftenattempttostockupwhenpricesarelowerAccentuatedbypromotionsanddiscountsatcertain times or for certain quantitiesSuchForwardBuyingresults in:LargeorderduringthediscountsRelatively smallorders atothertimeperiods5-11
5-11 Factors that Contribute to the Variability – Price Fluctuations ⚫ Retailers often attempt to stock up when prices are lower. ⚫ Accentuated by promotions and discounts at certain times or for certain quantities. ⚫ Such Forward Buying results in: ⚫ Large order during the discounts ⚫ Relatively small orders at other time periods
Factors that Contribute to theVariability -Inflated OrdersInflated orders during shortage periodsCommonwhenretailersanddistributorssuspectthata productwill be in shortsupply and therefore anticipate receivingsupplyproportionaltothe amountorderedAfterperiodofshortage,retailergoesbacktoits standardordersleads to all kinds of distortions and variationsindemandestimates5-12
5-12 Factors that Contribute to the Variability – Inflated Orders ⚫ Inflated orders during shortage periods ⚫ Common when retailers and distributors suspect that a product will be in short supply and therefore anticipate receiving supply proportional to the amount ordered. ⚫ After period of shortage, retailer goes back to its standard orders ⚫ leads to all kinds of distortions and variations in demand estimates
Quantifying the BullwhipConsider a two-stage supply chain:Retailer who observes customerdemandRetailer places anordertoa manufacturerRetailer faces a fixed lead timeorder placed attheend of period tOrderreceived atthestartof periodt+LRetailer follows a simple periodic review policyretailerreviews inventory everyperiodplaces an order tobring its inventory level upto atargetlevel.thereview period is one5-13
5-13 Quantifying the Bullwhip ⚫ Consider a two-stage supply chain: ⚫ Retailer who observes customer demand ⚫ Retailer places an order to a manufacturer. ⚫ Retailer faces a fixed lead time ⚫ order placed at the end of period t ⚫ Order received at the start of period t+L. ⚫ Retailer follows a simple periodic review policy ⚫ retailer reviews inventory every period ⚫ places an order to bring its inventory level up to a target level. ⚫ the review period is one
Quantifying the BullwhipBase-StockLevel =LXAVG+zx STDx VLOrderup-topoint=a,L+zLs,If the retaileruses a moving averagetechnique, = ZDE-(D,-p)1EI-Pp-1P5-14
5-14 Quantifying the Bullwhip ⚫ Base-Stock Level = L x AVG + z x STD x √L ⚫ Order up-to point = ⚫ If the retailer uses a moving average technique, ⚫ t LSt ˆ L + z t = p D t i t p i − = − 1 1 ( ) 1 2 2 − − = − = − p D S t i t p i t t