Discussion 17
CHAPTER SEVENTEEN Discussion Questions
1. What is the bullwhip effect and how does it relate to lack of coordination in a supply chain?
The bullwhip effect refers to the fluctuation in orders along the length of the supply chain as orders move from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect relates directly to the lack of coordination (demand information flows) within the supply chain. Each supply chain member has a different idea of what demand is, and the demand estimates are grossly distorted and exaggerated as the supply chain partner is distanced from the customer.
2. What is the impact of lack of coordination on the performance of a supply chain?
The impact of lack of coordination is degradation of responsiveness and poor cost performance for all supply chain members. As the bullwhip effect rears its ugly head, supply chain partners find themselves with excessive inventory followed by stockouts and backorders. The fluctuations in inventory result in increased holding costs and lost sales, which in turn spike transportation and material handling costs. Ultimately, the struggle with cost and responsiveness hurts the relationships among supply chain partners as they seek to explain their lack of performance.
3. In what way can improper incentives lead to a lack of coordination in a supply chain? What countermeasures can be used to offset this effect?
Incentive obstacles occur in situations when different participants in the supply chain are motivated by self interest. Incentives that focus only on the local impact of an action result in decisions being made that achieve a local optimum but can avoid a global (supply chain) optimum. All supply chain partners must agree on global performance measures and structure rewards such that members are appropriately motivated. Sales force incentives also are responsible for counterproductive supply chain behavior.
1. What is the bullwhip effect and how does it relate to lack of coordination in a supply chain?
The bullwhip effect refers to the fluctuation in orders along the length of the supply chain as orders move from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect relates directly to the lack of coordination (demand information flows) within the supply chain. Each supply chain member has a different idea of what demand is, and the demand estimates are grossly distorted and exaggerated as the supply chain partner is distanced from the customer.
2. What is the impact of lack of coordination on the performance of a supply chain?
The impact of lack of coordination is degradation of responsiveness and poor cost performance for all supply chain members. As the bullwhip effect rears its ugly head, supply chain partners find themselves with excessive inventory followed by stockouts and backorders. The fluctuations in inventory result in increased holding costs and lost sales, which in turn spike transportation and material handling costs. Ultimately, the struggle with cost and responsiveness hurts the relationships among supply chain partners as they seek to explain their lack of performance.
3. In what way can improper incentives lead to a lack of coordination in a supply chain? What countermeasures can be used to offset this effect?
Incentive obstacles occur in situations when different participants in the supply chain are motivated by self interest. Incentives that focus only on the local impact of an action result in decisions being made that achieve a local optimum but can avoid a global (supply chain) optimum. All supply chain partners must agree on global performance measures and structure rewards such that members are appropriately motivated. Sales force incentives also are responsible for counterproductive supply chain behavior.