Good Bullwhip Effect And Superefficient Companies Article Review Example

Part 1

Question 1
The bullwhip effect is a phenomenon that occurs when organizations in an unmanaged supply chain try to respond to fluctuating consumer demand from their own perspectives, which may result in significant volatility of orders placed upstream and of the whole supply chain network in general (QuickMBA.com, n.d.). Results of the bullwhip effect include higher cots and considerable reductions in quality of service. The bullwhip effect is generally caused by shifts in consumer demand combined with slow speed of information flow up the supply chain, and delays in manufacturing and shipping goods downstream. The following factors can contribute to intensification of the bullwhip effect: excessive reaction to backlogs, ineffective communication along the supply chain, refusing to order from considerations of inventory reduction, lack of coordination along the supply chain, hampered flow of information and materials, order batching, shortage gaming, imprecise demand forecasts, and free return policies.

Question 2

Volvo’s manufacturing department mistakenly increased the production output of green cars in the mid-1990s due to severe lack of effective communication between the sales department and the manufacturing department (Bean, 2006). In reality, the increased sales were caused by the promotional special deals launched by the company’s sales department, in order to get rid of excessive inventories of green cars. In this case, the bullwhip effect was a result of poor quality and speed of internal communication in Volvo, and led to wastage of resources and increase in inventories, as consumers were not likely to purchase additional green cars without the special deals.

Question 3

In order to counteract the bullwhip effect, companies have to address its primary causes: ineffective and slow communication and responsiveness, order batching, shortage gaming, volatile prices, inaccurate demand forecasts, and free return policies. Order batching represents a set of problems rather than one general issue: high order costs, full truckload economics, and random or correlated ordering (QuickMBA.com, n.d.). Full truckload economics is exploited by a lot of companies due to their desire to cut ordering costs, and can be countered with usage of assorted truckloads and third-party logistics, which can prevent order batching and still enable cost-effectiveness. In order to avoid random ordering, a company can change its ordering practices to small yet frequent orders. Shortage gaming relates to excessive orders associated with anticipated high demand that may exceed supply, and can be countered by limiting the flexibility of order quantities, and implementation of capacity reservations. Thus, a fixed volume can be reserved on an annual basis, with exact order quantities specified shortly before they are required, provided they do not go beyond the reservations. Volatile pricing can be effectively substituted by the everyday low prices (EDLP) model. It is much harder to implement a method that will deal with free return policies effectively, as they have become incredibly widespread. However, in order to minimize the bullwhip effect, it is preferable to limit or abandon such policies totally. IT can play a vital role in dealing with the bullwhip effect. Primarily, it can significantly reduce high order costs and substantially increase the accuracy of demand forecasts (Bray, & Mendelson, 2012). For instance, Computer Aided Ordering (CAO) and Electronic Data Interchange (EDI) are technological solutions that maximize the efficiency of ordering and avoid high ordering costs. Timely transmission of point of sale (POS) data can be implemented via special terminals and software, and has a tremendously positive effect on the accuracy of demand forecasting. Moreover, since the bullwhip effect is often caused by poor quality of communication and slow information flow across the supply chain, there are numerous special software solution offered by companies like Oracle, Microsoft, and Cisco, that can improve the quality of internal and external communication considerably.

Part 2

Question 1
The major problem that Geon faced after divestiture of its VCM and resins operation to OxyVinils lied in appearance of barriers to effective communication and integration of Geon’s operations that the company has been eliminating for years. Transfer of the two functional areas to another company resulted in absence of coordination, problems with information sharing, serious overheads and duplication (Hammer, 2001). Order processing time increased substantially due to implementation of overly complex interfaces and excessively formal communication between Geon and OxyVinils. The companies were not able to assess each other’s inventories, demand, and shipments effectively. Manufacturing became unstable, due to numerous unpredicted stops, delays, and changes. Additionally, production planning period shortened more than twice. Geon’s inventories and working capital elevated by over 10 percent, along with almost tripled order-fulfillment cycle.
Question 2
General Mills faced a problem associated with inefficient distribution of its refrigerated products. These goods represent a rather low portion of supermarket sales, which often results in either partially loaded truckloads, which are generally ineffective cost-wise, or problems in delivery due to an attempt to maximize truckload effectiveness by delivering refrigerated products to more than one supermarket per run.

References

Bean, M. (2006). Bullwhips and beer: why supply chain management is so difficult. Forio Corporation. Retrieved from http://forio.com/about/blog/bullwhips-and-beer/
Bray, R. L, & Mendelson, H. (2012). Information transmission and the bullwhip effect: an empirical investigation. Management Science, 58(5), 860-874
Hammer, M. (2001). The superefficient company. Harvard Business Review, 82-91
QuickMBA. The bullwhip effect. Internet Center for Management and Business Administration. Retrieved from http://www.quickmba.com/ops/bullwhip-effect/