Tag Archive - Jay Wright Forrester

Beating the Bullwhip

 

The Bullwhip Effect describes the problems of trying to cope with fluctuating customer demand and the need for holding an inventory to cover the changes. J Forrester observed that the further up the supply chain one goes, the greater the inventory contingency required, and the greater the costs associated.

Bullwhip

Source: Wikipedia

Theoretically beating the bullwhip is simple – all that is required is to ensure that orders match demand precisely in any given operating period. Clearly this almost impossible in reality, so instead the accurate management of safety stock levels and precise forecast calculations are essential to reduce the impact up the supply stream.

Experts suggest that moving from forecast-driven to demand-driven supply chain methodology will be more successful than statistical analysis, as goods are manufactured to order based on up-to-the-minute data directly from the retailer. Known as ‘Kanban’ within manufacturing industries, demand-driven supply chains gather sales data from the Point of Sale (POS) terminals in an organisation’ stores, allowing collection of highly accurate customer demand data which can then, according to business policies, be made available for use by any partner within the supply chain.

The genius of Kanban-based supply is that information sharing allows every link in the supply chain access to the customer demand data which can then be used to inform their internal inventory buffers. This open data dispensation actually benefits business up and down the supply chain, adding an additional layer of financial protection to each by avoiding the costs associated with an oversized safety buffer of stock.

Implementation of such a demand-driven system can be fraught with difficulties, both technical and political, but the use of externally hosted cloud services such as Celtrino’s Smart Admin platform can help address many of these. Smart Admin allows businesses to retain their own in-house systems whilst providing a data sharing interface for accessing the relevant data from their supply chain partners.


Posted on February 8, 2012 in B2B Platform in the Cloud, B2G e-invoicing, Business Process Outsourcing, Celtrino Platform, Cloud Computing, Supply Chain, Supply Chain Performance by
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What is the ‘Bullwhip Effect’?

 

First coined by J Forrester in his seminal paper Industrial Dynamics back in 1961, the phrase ‘bullwhip effect’ is used to describe the knock on effects of a single product and its demand on the wider supply chain. Forrester found that in forecast-driven distribution channels, a change in demand had an ever increasing effect the further back into  the supply chain he went. When graphed, these oscillating changes in demand appear as a series of waves which get greater in size, reminiscent in appearance of a cracking whip. Because Forrester is credited with documenting the bullwhip phenomenon, it is also known as the Forrester effect by some.

Bullwhip Effect and the Supply Chain

Source: Wikipedia

The effect is created by statistical demand by suppliers attempting to forecast customer demand to properly position stock and raw materials at the correct points for timely delivery. Forecasting provides some degree of statistical accuracy, but the vendor must carry an inventory buffer to cover unforeseen fluctuations. Moving further up the supply chain, manufacturers and suppliers of raw materials must also maintain an inventory buffer to satisfy the demands of their own customers; because these demands can shift to even greater degrees, the “safety stock” levels must also be greater. Should downstream demand fall, the supplier is left carrying inventory which they are unable to shift, creating the “bullwhip effect”.

Forrester also observed that the bullwhip effect can be caused by a number of factors relating to human error or operational problems. Misapplication of statistical forecasting techniques or internal and external communication issues all play a part in oversized inventory buffers. So too do perceptions regarding supplier’s ability to meet demand and fulfil orders for a variety of reasons.

The bullwhip effect has an effect on an organisation’s bottom line, through inefficient production or stock short falls. The obvious knock-on effect is a reduction in customer service and satisfaction levels which has a definite negative, and therefore costly, impact on a brand’s reputation.

 


Posted on February 3, 2012 in Supply Chain, Supply Chain Management, Supply Chain Upstream and Downstream by
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Masters of Supply Chain Management – Jay Wright Forrester

 

Although many people are claimed to be the ‘Father of Supply Chain Management’, Jay Wright Forrester’s research into Systems Dynamics lends weight to the argument for his claim to the moniker.

Forrester grew up on his family cattle ranch in Nebraska where he first demonstrated a gifting for electrical engineering when he developed a wind-driven system to provide the ranch with its first-ever electrical feed. Realising that he preferred engineering to raising cattle, Forester went on to study electrical engineering at the local university.

Masters of Supply Chain Management – Jay Wright Forrester

Forrester went on to further study at the Massachusetts Institute of Technology under the tutelage of Gordon Brown (no, not that one!) where he was put to work developing various devices for military deployment during World War II. Forrester continued work with the military developing a number of computerised systems after the end of the War, but eventually left engineering in favour of management.

Whilst lecturing at the MIT School of Management, Forrester began research into the interactions between objects in dynamics systems, leading to the modern concept of supply chain management. The work undertaken by Forrester and his team in the late 1950s have formed the foundations for all major supply chain management systems.

Systems Dynamics seeks to analyse and understand the behaviour of a complex system, particularly each of the internal processes which have the potential to affect the entire system. Systems Dynamics concentrate on trying to explain how simple systems are able to behave in previously unpredicted ways, using feedback loops and stocks and flows.

Put into the context of a business, Systems Dynamics help to explain how the delayed availability of a small component can cause major problems further down the construction process. By seeking to understand such effects, Systems Dynamics help to prevent these same problems.

Systems Dynamics are directly related to Supply Chain Management, and Forrester led the field in understanding them. Forrester’s claim to paternity is therefore substantial.


Posted on February 2, 2012 in Supply Chain, Supply Chain Management by
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