Risk Pooling

Combining demand streams reduces the amount of safety

stock.
For example;
Suppose two different demand markets are fulfilled from two
different distribution centers (1 and 2),

Distribution Center 1 (DC1) : It has a standard deviation of demand 4

Distribution Center 2 (DC2) : It has a standard deviation of demand 3

Both distribution centers have one day lead time

and service level = 95% (1.65 - table)
 Bullwhip Effect

The bullwhip effect is the uncertainty caused from distorted

information flowing up and down the supply chain.

Who Is Affected?
 Nearly all parties or industries are affected in the supply
chain.
 Firms that experience large variations in demand are at
risk.
 Firms that depend on suppliers upstream or distributors
and retailers downstream may be at risk.