My Contribution to the Bull Whip Effect is as follows, of which i believe need to be considered before one selects suppliers. Please share and contribute where necessary.
Demand variability tends to increase as one moves up stream in the supply chain away from the retail consumer as we experienced in our class exercise. Eventually this results into very large swings in the supply chain as every party invlolved tries to solve the problem in the best way known to them, thus increasing operational costs and poor service delivery.
The causes to bull whip effects mostly in real life scenerio are either said to be demand variability, quality problems, strikes, plant fires e.t.c. When this takes effect panic arrises, miss-communication as well time delays up and down the supply chain network leading to the B.W effect. Other factors as well according online MBA progams include: 1. Over reaction to backlogs 2. Intentional neglect to order so as to reduce stock levels 3. Delay time for material and info flow 4. Poor coordination up and down the s.chain stream 5. Demand forcast In-accuracies 6. Free return Policies
Approaches in supplier seletion i do believe are brought about by profit driven optimization problems, where all the parties in the S.Chain from the retailers, to wholsalers and distributers want to maximize their profits hence influencing the decision they shall make.
1.Suppliers here are looked in terms of either having a domestic based one with high-costs and with a shorter lead time, or
2.A low cost international supplier with a longer lead time.
Most of the time costs tend to influence the supplier selected,bringing in an issue of time and poor forcasting and un-certainity and even holding costs increasing. When this takes effect as demostrated in the class execises, the Bull Whip effect results.
From my experience, supplier selection is a critical issue in EMS(Electronics Manufacturing Services) factories. As it is widely understood, EMS factories usually get rolling forecast from customers and fulfillment on time is one of the important elements of customer satisfaction. Bullwhip effect usually appears when peak seasons come but rolling forecast and stock level monitoring play important roles to minimize the impacts. Besides, cost is another issue to earn more orders.
Usually a procurement staff would be trained to use "QCDS" to evaluate suppliers vendors, where QCDS means quality, cost, delivery, and service. The ratio is not average for each dimension because each supplier has its own advantages and disadvantages and what benefits we expect to bring for various vendors are also different. However, EMS factories always pursue lower cost in order to earn more profits. Procurement departments have to face huge pressure to find more cost-competitive suppliers and dilemmas to balance cost and quality. In my opinion, it is understandable that 1% purchasing amount decrease can increase 1% profit; but when encountering the situation that many selling prices of raw materials are already close to the bottom cost, we should find another way to lower purchasing amounts, not only ask procurement departments to cut price.
The Bullwhip Effect and its root causes have been subject of debate over the past years. For a detailed discussion, see the following paper by by Lee et al. (1997) published in Management Science (a 4* journal):
- Distortion in Supply Chains: The Bullwhip Effect, Management Science, 43(4), pp. 546-558.
In this paper, four sources of the bullwhip effect are introduced as:
- demand signal processing, - rationing game, - order batching, and - price variations.
The author also recommend the actions that can be taken to mitigate the detrimental impact of this distortion.
Let me add more information of Harry's opinion that the approaches in supplier selection are important decision because it could lead to maximize profits. Therefore, it would seem to me that the companies should have more than one supplier in the same material as a result the benefit of the the economies of scale and reduced the risk 100% in the same material.
Supplier selection is usually one of the strategic decisions that companies make (see here for an overview: http://www.emeraldinsight.com/Insight/viewContentItem.do?contentId=1240145&contentType=Review). This decision is indeed part of a higher level decision called 'supply network design' with profound impact on long term business objectives.
I agree with Harry and Rad on negative effect of over-emphasizing on cost/profit side of supplier selection. The recent case of Boeing's new aircraft (787: Dreamliner http://www.newairplane.com/) is a good example of the impact of cost consideration in outsourcing on late introduction of the aircraft by some two years. Any volunteer to post a link to the story in this blog? This case links well with the point raised by Phailin on the importance of risk assessment in supplier selection. We acn see that there is a combination of cost/benefit criteria in conjunction with other performance metrics like risk that need to be considered in selecting suppliers. That's why supplier selection is a vivid examples of multi-criteria decision making among researchers and practitioners.
i'd like to give more useful information which compare between single-sourcing and multi-sourcing. The advantage of single-sourcing are purchaser can make the price cheaper by competitive tendering. In addition, multi-sourcing can decrease supply failure because we have more sourcing to feed the plants. In contrast, the drawback of multi sourcing are it's quite difficult to encourage commitment by supplier;moreover, it's difficult to obtain scale economies. (Slack,2007: 409). On the other hand, the advantage of single-sourcing are it has better quality because it has more supplier quality assurance (SQA) possibilities. Importantly, supplier and purchaser has strong and durable relationship which is effective for business. It is also easier to cooperate on new products and service development. In particular, source of knowledge is wide lastly, purchaser can confident to single sourcing. However, there are disadvantage which are it is possible to have supply failure, this is a big problem for business that has single-sourcing. Moreover, supplier may exert upward pressure on price, if we don't have alternative sourcing (Ibid) Therefore, in my view choosing supplier for multi-sourcing is useful for short-term benefit whereas supplier for single- sourcing is good for long-term benefit.
My Contribution to the Bull Whip Effect is as follows, of which i believe need to be considered before one selects suppliers. Please share and contribute where necessary.
ReplyDeleteDemand variability tends to increase as one moves up stream in the supply chain away from the retail consumer as we experienced in our class exercise. Eventually this results into very large swings in the supply chain as every party invlolved tries to solve the problem in the best way known to them, thus increasing operational costs and poor service delivery.
The causes to bull whip effects mostly in real life scenerio are either said to be demand variability, quality problems, strikes, plant fires e.t.c. When this takes effect panic arrises, miss-communication as well time delays up and down the supply chain network leading to the B.W effect. Other factors as well according online MBA progams include:
1. Over reaction to backlogs
2. Intentional neglect to order so as to reduce stock levels
3. Delay time for material and info flow
4. Poor coordination up and down the s.chain stream
5. Demand forcast In-accuracies
6. Free return Policies
Approaches in supplier seletion i do believe are brought about by profit driven optimization problems, where all the parties in the S.Chain from the retailers, to wholsalers and distributers want to maximize their profits hence influencing the decision they shall make.
ReplyDelete1.Suppliers here are looked in terms of either having a domestic based one with high-costs and with a shorter lead time, or
2.A low cost international supplier with a longer lead time.
Most of the time costs tend to influence the supplier selected,bringing in an issue of time and poor forcasting and un-certainity and even holding costs increasing. When this takes effect as demostrated in the class execises, the Bull Whip effect results.
From my experience, supplier selection is a critical issue in EMS(Electronics Manufacturing Services) factories. As it is widely understood, EMS factories usually get rolling forecast from customers and fulfillment on time is one of the important elements of customer satisfaction. Bullwhip effect usually appears when peak seasons come but rolling forecast and stock level monitoring play important roles to minimize the impacts. Besides, cost is another issue to earn more orders.
ReplyDeleteUsually a procurement staff would be trained to use "QCDS" to evaluate suppliers vendors, where QCDS means quality, cost, delivery, and service. The ratio is not average for each dimension because each supplier has its own advantages and disadvantages and what benefits we expect to bring for various vendors are also different. However, EMS factories always pursue lower cost in order to earn more profits. Procurement departments have to face huge pressure to find more cost-competitive suppliers and dilemmas to balance cost and quality. In my opinion, it is understandable that 1% purchasing amount decrease can increase 1% profit; but when encountering the situation that many selling prices of raw materials are already close to the bottom cost, we should find another way to lower purchasing amounts, not only ask procurement departments to cut price.
The Bullwhip Effect and its root causes have been subject of debate over the past years. For a detailed discussion, see the following paper by by Lee et al. (1997) published in Management Science (a 4* journal):
ReplyDelete- Distortion in Supply Chains: The Bullwhip Effect, Management Science, 43(4), pp. 546-558.
In this paper, four sources of the bullwhip effect are introduced as:
- demand signal processing,
- rationing game,
- order batching, and
- price variations.
The author also recommend the actions that can be taken to mitigate the detrimental impact of this distortion.
Let me add more information of Harry's opinion that the approaches in supplier selection are important decision because it could lead to maximize profits. Therefore, it would seem to me that the companies should have more than one supplier in the same material as a result the benefit of the the economies of scale and reduced the risk 100% in the same material.
ReplyDeleteSupplier selection is usually one of the strategic decisions that companies make (see here for an overview: http://www.emeraldinsight.com/Insight/viewContentItem.do?contentId=1240145&contentType=Review). This decision is indeed part of a higher level decision called 'supply network design' with profound impact on long term business objectives.
ReplyDeleteI agree with Harry and Rad on negative effect of over-emphasizing on cost/profit side of supplier selection. The recent case of Boeing's new aircraft (787: Dreamliner http://www.newairplane.com/) is a good example of the impact of cost consideration in outsourcing on late introduction of the aircraft by some two years. Any volunteer to post a link to the story in this blog? This case links well with the point raised by Phailin on the importance of risk assessment in supplier selection. We acn see that there is a combination of cost/benefit criteria in conjunction with other performance metrics like risk that need to be considered in selecting suppliers. That's why supplier selection is a vivid examples of multi-criteria decision making among researchers and practitioners.
i'd like to give more useful information which compare between single-sourcing and multi-sourcing. The advantage of single-sourcing are purchaser can make the price cheaper by competitive tendering. In addition, multi-sourcing can decrease supply failure because we have more sourcing to feed the plants. In contrast, the drawback of multi sourcing are it's quite difficult to encourage commitment by supplier;moreover, it's difficult to obtain scale economies. (Slack,2007: 409). On the other hand, the advantage of single-sourcing are it has better quality because it has more supplier quality assurance (SQA) possibilities. Importantly, supplier and purchaser has strong and durable relationship which is effective for business. It is also easier to cooperate on new products and service development. In particular, source of knowledge is wide lastly, purchaser can confident to single sourcing. However, there are disadvantage which are it is possible to have supply failure, this is a big problem for business that has single-sourcing. Moreover, supplier may exert upward pressure on price, if we don't have alternative sourcing (Ibid) Therefore, in my view choosing supplier for multi-sourcing is useful for short-term benefit whereas supplier for single- sourcing is good for long-term benefit.
ReplyDelete