Management of Demand and Distribution

Supply Chain of Petrol
Every time we visit petrol pump, we find that it is available – every time,
all the time. For you, and for countless other motorists.

Think, somebody must have put the petrol into the tank for you to pump from.
– –

The supply chain for Petrol is indeed quite reliable, so much so that most consumers take it for granted
A) B)

Somebody must have prospected for oil, found it, and then dug the well to extract it. Next, somebody must have shipped the oil to a refinery, converted it into Petrol , and then transported the it to your favorite petrol station.

Demand predictions are reliable and effective Distribution system is efficient

1 Order Size Customer Demand Time Demand assessment: Ordering by retailer Order Size Customer Demand Retailer Orders Time ..Demand pattern:: Analysis.

Demand assessment: Ordering by distributor Distributor Orders Order Size Customer Demand Retailer Orders Time Demand assessment: Production Plan Production Plan Distributor Orders Order Size Customer Demand Retailer Orders Time .

W/H. DC.Bullwhip Effect in Supply Chains Forrestor: Industrial Dynamics. Plant Bullwhip Effect The bullwhip effect is a phenomenon observed in supply chains wherein the demand variability increases as one moves upstream from retailers to distributors to manufacturers Retailers Warehouses/ Distributors Manufacturers . HBR. 1958 BWE describes the increasing amplification of orders occuring within a SC Resembles a whip lash Occurs even if end-item demand is fairly stable! Forrestor studied a simulation model of the simplest tandem supply chain with four entities: Retailer. 36:4.

Bullwhip Effect Example: P&G Diapers . .Bullwhip Effect – In 2001. due to uncertain variations in its demand in its supply chain.2 billion worth of obsolete inventory. Cisco was forced to write down $2.

Impacts of Bullwhip It distorts the order information & amplifies order variability. • Impact of Bullwhip Effect: -. more likely to cause stockouts and lost sales Higher costs Bullwhip effect .Customer Service: Lower service level.Warehousing: More warehouse capacity needed -.an example Chronology of company “X’s” supply chain problem. Customer demand for Company X’s SOAPS become stagnant Retailers offer a sales promotion to boost sales of Company X widgets .Manufacturing: Lower capacity utilization -.Transportation: Lower utilization of transportation -. • • • Company X produces SOAPS for sale on the open market.Inventory: More safety stock needed -.

poor customer service.Example – continued • Retailers fail to notify manufacturers of sales promotion • Company X recognizes that demand for SOAPS have increased. adjusted capacity and many other problems associated with the bullwhip effect. . Moral of the story Distorted information along the supply chain caused inventory levels to increase along the supply chain which may result in increased inventory costs. • Suppliers increase inventory to meet demand. • Company X increases inventory to allow for increased manufacturing of SOAPS • Company X notifies part suppliers of increased demand.

The top of the supply chain receives the harshest impact of the whip effect. Key: = Inventory Levels . Firms along the supply chain are able to set their inventory to meet demand. Key: = Inventory Levels Supply Chain Disrupted Customer Demand forecast = 20 units Information Flow Suppliers Products & Services 80 Units 160 Units 80 Units Producers Products & Distributors Products & Services Services 40 Units 40 Units 20 Units Retailers Cash Flow As demand increases. the distributor decides to accommodate the forecasted demand and increase inventory to buffer against unforeseen problems in demand.Supply Chain in Equilibrium Customer demand forecast = 10 units Information Products & Services 10 Units 10 Units 10 Units Suppliers Producers Products & Products & Services Distributors Services 10 Units 10 Units 10 Units Retailers Cash Retailers are selling product at a constant rate and price. Each step along the supply chain increases their inventory (double in this example) to accommodate demand fluctuations.

.Bullwhip :: Major causes..1. the greater possibility of scheduling changes and demand changes .  Forecasting is often updated based on the order history from immediate customers  The longer the lead time... the greater the fluctuation  The longer planning horizon.2.  Demand forecasting updating  Neglecting to order in an attempt to reduce inventory  No communication up and down the supply chain  No coordination up and down the supply chain  Delay times for information and material flow Bull whip :: Major causes .

..  Avoid multiple demand forecast updates  Break order batches  Stabilize prices .the economics of transportation such as full truckload (FTL) and less-than-truckload rates  Push ordering Remedial measures to counteract bullwhip effect .Demand Forecasting Updating  Natural economic behavior  Periodic ordering .1.

Year round low pricing  Reduce lead times. Vendor managed inventory 2. EDI 2..2. POS 2. Cross Docking  Alliance arrangements.  Reduce variability and uncertainty. 1. 1.Remedial measures to counteract bullwhip effect. On-site vendor representative Summary and Lessons • Effective management of demand essentially requires:: – Correct and timely forecast – Seamless information flow across organization – Effective management of resources – Relationship with channel partners – Commitment towards customer This will lead to productivity and profitability to all channel partners as a whole . Sharing information 3.. 1.