Supply chain leaders have been hearing about – and suffering from – the bullwhip effect for quite a while now. What is it and what can we do to strengthen supplier relationships, improve demand and supply chain planning, and simplify supplier collaboration?
What is the Bullwhip Effect?
While it’s been around for decades, the bullwhip effect has reared its ugly head recently in response to the unprecedented impacts of the COVID-19 pandemic combined with existing weaknesses in the supply chain. It occurs when unexpected upswings in demand or “demand distortions” are amplified upstream, starting from the consumer, moving to the retailer and distributor and finally to the producer, which may or may not be able to increase production for a demand that may or may not last.
Common results of the bullwhip effect are excess inventory and associated cost increases, lost revenue, unnecessary capacity and a less-than-optimal customer experience.
“Economists have blamed product shortages such as semiconductors and the present spike of inflation, to an extent, on the bullwhip effect,” reports a recent article from BusinessThink at the University of New South Wales.
Causes of the Bullwhip Effect
Exacerbated by the pandemic, global supply chain challenges have included manufacturing lockdowns, labor issues across all sectors, transportation challenges ranging from port backups to a lack of truck drivers, and rapid and sudden changes in consumer demand. The bullwhip effect has multiple causes that distort the supply chain, including:
- Changes in demand forecasting
- Rounding up or down of the quantity of orders and batches
- Price fluctuations and discounts resulting in increased purchases
- Quantity rationing or delivering under/over order quantities
Economists also point to just-in-time operations as a factor, as described in a recent article about supply chain imbalances, from a global logistics provider:
“Global vulnerability to a bullwhip effect has been years in the making. Decades of just-in-time manufacturing have sought to eliminate as much supply chain inefficiency as possible, by tightly matching replenishment to demand. But a just-in-time philosophy can leave companies empty-handed when suppliers misjudge volatile demand signals.”
How to Counteract the Bullwhip Effect
Brittle supply chains need specific solutions to gain agility, efficiency and resilience. Solutions that minimize friction, respond to demand and supply imbalances and streamline collaboration are the answer.
QAD offers three specific capabilities to mitigate the bullwhip effect and achieve supply chain success: Integrated Supplier Management, Customer Management and Connected Supply Chain Management.
Integrated Supplier Management
QAD’s Integrated Supplier Management solutions deliver the means to reduce supply chain issues and strengthen supplier relationships. By enhancing real-time communication among manufacturers and suppliers and eliminating manual processes, the tools create significant value. They also provide the means for managing inbound logistics. To that end, QAD offers:
- QAD Automation Solutions to capture inbound receiving data, print accurate labels, enforce rules for warehouse operations.
- QAD SRM (Supplier Relationship Management) delivers one centralized locale for collaboration with suppliers, including supplier qualification, sourcing, auctions, and real-time communication about all aspects of inventory, invoices, schedules, orders and shipments with QAD Demand and Delivery.
- QAD Precision Global Trade & Transportation Execution to screen suppliers, management inbound shipments and comply with international regulations.
- Purchasing solutions that automate and add visibility to procurement processes, from planned orders or requisitioning and approvals, through creation and communication of orders or schedules to suppliers, to recording the receipt of goods and services.
A recent Deloitte study revealed that 75% of procurement leaders name supplier collaboration as their top strategy for mitigating supply chain risks on an ongoing basis.
Gaining the ability to exchange real-time intelligence with supply trading partners gives manufacturers the tools to respond to the bullwhip effect. Technology optimizes communication and collaboration to respond rapidly to supply chain issues.
Complete Customer Management
QAD’s Complete Customer Management solutions promote positive customer experiences through upgraded visibility. Customer collaboration is improved, leading to customer retention and satisfaction. Manufacturers gain improved management of orders, pricing, customization and fulfillment. With automation, users can monitor sales and marketing processes, run campaigns and review analytics and simulations.
- QAD Customer and Service Management of the customer lifecycle delivers accurate order and release management and streamlines all aspects of the customer lifecycle, from acquisition through customer service.
- QAD Customer Self Service fosters real-time collaboration and ordering, giving customers various self-service options.
- QAD Configurator streamlines the ordering of complex, configurable products and make-to-order at scale products. Create rules and business logic.
- QAD CRM for Manufacturers delivers customer lifecycle coordination with a complete view of customers’ sales, billing and servicing needs.
Connected Supply Chain
With QAD’s Connected Supply Chain solutions, users gain modern forecast modeling and execution, improved planning and better overall supply chain performance.
- QAD Supply Chain is the foundation for supply chain management, compliance and visibility.
- QAD DynaSys Digital Supply Chain Planning delivers forecasts and plans to ensure alignment among goals, sales forecasts and ops.
- QAD Precision Global Trade & Transportation Execution provides options to screen suppliers, manage transportation, control parcel shipments and ensure cross-border compliance.
Getting to a More Adaptive Supply Chain
From our experience, we know that digital solutions give manufacturers the tools they need to counter the bullwhip effect, strengthening supplier relationships, improving demand and supply chain planning and simplifying supplier collaboration.
And the research agrees. In a study of 15,000 firms, researchers found that “one common denominator of the firms that handled the bullwhip well was that they already had supply chain management at the top of their corporate agenda. In many cases, the most successful firms had given this issue attention at the board level.
