How does the Bullwhip Effect occur?
Suppose that there is an unexpected surge in demand for a particular product by the consumer. Seeing the increased demand, the retailer places an order with the local supplier, adding a little extra for safety stock to protect against an out of stock. The local supplier then places an order with their wholesaler, again adding a little extra for safety stock. There is a domino effect up the supply chain because the raw material supplier sees a demand for raw materials that far exceeds that which is warranted by the original increase in demand at the consumer end of the supply chain.
The magnitude of the demand has been amplified at each link in the chain, so the whole supply chain is now bloated with safety stock at every point. Because of lack of transparency, those at the supply end of the chain ‘see’ a distorted view of the real consumer demand.
Be Proactive, Not Reactive
At Krunchbox we have firsthand experience of working with retailers and their suppliers, sharing a common platform of dashboards and reports so that retailers and suppliers alike see the same sales data at the SKU/location level.
The retailer shares the POS data with the supplier, and the supplier shares their available inventory with the retailer via the Krunchbox platform.
Forecasts can be shared and aligned, leading to joint business planning, demand-driven supply chain decisions, reduction in unnecessary safety stock, fewer markdowns to shift excess inventory, and better margins.
What is not to like about that?