Supply chain coordination and the bullwhip effect relationship
The need of the supply chain coordination is important to supply chain manager, as we want to establish and maximizes the total profitability. This means supply chain coordination is, an aligned taking actions in all chain stages for increasing the total supply chain surplus. Which requires in each stage sharing information and taking into account the effects of its actions on the other stages. Sometimes these actions effects lack …show more content…
Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies”. Whereas if the companies understanding the main causes of create the bullwhip effect which leads to destroyed information so then they can avoid it. Based to Hau, V, & Seungjin research paper the causes are:
Demand forecast updating: each chain member updates forecast based on received orders at his end and not based on the demand raised by the end customer.
Order batching: each chain member has their own scale economics in production and transportation.
Price fluctuation: discounts and promotion prices in forward buying may cause distortion.
Rationing and shortage gaming: suppliers usually resort to rationing, which in turn provides incentives to buyers to inflate orders.
Further, supply chain lacks coordination if each stage optimizes only its local objectives. Accordign to Rao (2015), “Bullwhip effect reduces the profit of a supply chain by making it more expensive to provide a given level of product availability”. It can be effect by increasing costs for the supply chain by indicators listed bellow, which will be end with …show more content…
Yet there us problem either as unfilled orders or excess inventory not having the order from down stream.
Rao, (2015) refers that: “The main reasons for coordination problems in supply chain are distributed owners of various stages of production & distribution, and product variety. The fundamental challenge is for supply chains to achieve coordination in spite of multiple ownership and increased product variety”.
The obstacles to supply chain coordination
Supply chain coordination is an important as use supply chain manger that wants to increase total profitability. Thus the supply chain manager needs to put in consideration the obstacles to supply chain coordination.
Arise when incentives offered to different stages or participants in a supply chain lead to actions that increase variability and reduce total supply chain profits. Incentive is an important lever, but it have to think about it very carefully. In reason that, as a supply manager is not responsible of the profit of their company but responsible for the profit of whole supply chain.