BULL WHIP EFFECT

The bullwhip effect or whiplash effect is an observed phenomenon in forecast-driven distribution channels.
It refers to a trend of larger and larger swings in inventory in response to changes in demand.
Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop, thereby not reducing inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer).

Causes of BWE :

• Panic ordering reactions after unmet demand.
• Perceived risk of other players' bounded rationality.

• Dependent demand processing
  • Forecast Errors
  • Adjustment of inventory control parameters with each demand observation
• Lead time Variability (forecast error during replenishment lead time).
• Trade promotion and forward buying.
• Anticipation of shortages.

Now, all the above given gyan has been copy pasted from wiki, but why I am doing this? whats the use of this???Why have I started this blog?

Reason here has only been one & only one that is just in order to be in touch with the facts of retail which I had read in MBA. I don't want them to get eluded out of my mind as all the engineering crap did. Plus one more thing just came in my mind right now that I would share my own personal experiences which have blessed me with few learning. I don't have huge work experience but even then, we all can simultaneously learn and teach and moreover SHARE....

Now coming back to BULL WHIP EFFECT.

There is hell a lot written on wiki which is very much informative & a bit confusing too according to me.

There were many other reasons written there but according to me above stated reasons are most important ones & the ones which are important to get this phenomenon grabbed easily.

I am working as a category manager of Luggage category in Future group and my profile is of Sales & merchandising. I have to keep a track of what stocks are moving to the 21 big bazaar stores. Everyday I have to make projections of what quantity of stocks will be required at the stores in promo periods and normal days. And after every promo period I feel same bull whip effect playing at some of my stores, and it worsens when I allocate stocks for next promo period.

Projections play a very important role during any promo period as we always consider last 3 or 4 promo period and analyse the rend of sales in brands at article level. Never let your projections go out of the limits nor try taking same growth patterns for all the stores/outlets. Try considering sales pattern of a particular store in particular category. You might end up having 10% growth for one store & 40% growth for other.

In order to minimize the same I have made one habit of inter store transfers during the promo period & also of pre bookings with advance payments on the basis of stocks available at the nearest stores.

I counter the huge left overs at one store by inter store transfers & stock out situations by advance bookings.

So, any retailer who is working at the same profile can use this thing (in fact must be already using it) to counter the same & also would be able to understand the position of worsened BULL WHIP EFFECT.

If you like this blog then write a comment on it & if not even then write a comment otherwise its actually not mandatory too...

See ya all later with my new copy pasted gyan, till then NAMASTE...