THE OPTIMAL ROLE OF OPTIMAL INVENTORY IN SUPPLY CHAINS AND BUSINESS

What Causes the Bullwhip Effect?

• Long, Expensive Setups • Expensive Purchase Order Processing • Transportation Economies • MRP/DRP Jitters via Manual Intervention • Incentives and Measurement Systems

• In anticipation of shortages and gaming

• With high-low

• Repeated, inaccurate forecasting processes

pricing, forward buying is the “optimal” ordering policy. one part of the supply chain propagates order variability up the supply chain.

behaviors by competitors,

automatically amplify order variability. • The longer and more variable the lead time, the larger the amplification effect.

firms order more than needed (phantom orders). • Phantom orders are cancelled when the shortage is over.

• Promotion in

Shortage Gaming

Poor Demand Signal Processing

Batching for Economies of Scale

Price Fluctuations & Promotions

RightChain™ Incorporated

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