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.
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.