Instability in supply

chain-demand supply
variation
Supply chain dynamics

 Small changes in one part of the supply chain can cause extremely erratic
behavior in other parts
 The above phenomenon is also known as “the bullwhip effect” or “supply
chain distortion”, “supply chain amplification” and “the Forrester effect”.
 We study supply chain dynamics under:
 Quantitative dynamics
 Qualitative dynamics
Bullwhip effect
Supply chain dynamics

 Quantitative supply chain dynamics

 Measurable factors – inventory
 Inventory has a uncoupling effect on operations
 Inventory gives ‘elasticity’ but limits ‘effectiveness’
 Variation in inventory(stock) at different points in the supply chain affects dynamics (demand supply
mismatch)
 Qualitative supply chain dynamics
 Supply variations are also caused because of some misunderstanding and misinterpretation among
various operations
 Execution of three logical links should be corrected:
 Understanding customer’s needs correctly
 Understanding the association between what an operation’s customer need and therefore what its suppliers
should be providing
 Ensuring that suppliers really do understand what is required.
Supply chain instability
 Quantitative and qualitative dynamics collectively help us to understand the
instability of supply chains
Reasons for supply chain instability

 Demand forecast updation

 Order batching
 Price fluctuation
 Rationing and shortage gaming
Managing supply chain dynamics:
reducing supply chain instability
 Some proactive actions/activities are needed to
understand supply chain dynamics and reduce supply chain
instability. These actions/activities are:
 Coordination activities

 Differentiation activities

 Reconfiguration activities
Coordination among supply chain
activities
Categories of coordination:
 Information sharing – transparency of demand information among all
operations/points in the supply chain to get true demand.

 Channel alignment – adjustment of scheduling, material movement, pricing and

stock levels

 Operational efficiency – reduce complexity of operations and reduce cost

Differentiation: matching supply
network strategy to market requirements
 Supply networks should differentiate between different market requirements
 Thus, different supply chain management strategies are needed for
different types of market requirements.
 To do so, an approach by Marshall Fisher of Wharton Business School can be
used. It focused on a connection between:
 Different market requirements – functional and innovative
 Different resource objectives – Speed(responsiveness) and cost (efficiency)
 Achieving fit between market requirements and SC resource objectives
Achieving fit between market requirements and SC
resource objectives
Reconfiguration

 Reconfiguration involves changing

 the scope,
 activities and
 shape of supply chain.
 Disintermediation: It involves, merging two or more operations in
supply chain into one eg: e-retailers