Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Seung-Kuk Paik, Prabir K. Bagchi, (2007),"Understanding the causes of the bullwhip effect in a supply chain", International
Journal of Retail & Distribution Management, Vol. 35 Iss 4 pp. 308-324 http://dx.doi.org/10.1108/09590550710736229
Jan C. Fransoo, Marc J.F. Wouters, (2000),"Measuring the bullwhip effect in the supply chain", Supply Chain Management: An
International Journal, Vol. 5 Iss 2 pp. 78-89 http://dx.doi.org/10.1108/13598540010319993
Peter McCullen, Denis Towill, (2002),"Diagnosis and reduction of bullwhip in supply chains", Supply Chain Management: An
International Journal, Vol. 7 Iss 3 pp. 164-179 http://dx.doi.org/10.1108/13598540210436612
Access to this document was granted through an Emerald subscription provided by emerald-srm:546149 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more
than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products
and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics
(COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
ABSTRACT
Purpose: The purpose of this paper is to present two examples based on real life experiences where the Bullwhip effect (BWE)
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)
in supply chain is considerably reduced. Both examples relate to the consumer durables industry in India.
Design/methodology/approach: The first example uses enterprise resource planning and vendor managed inventory as tools
to reduce the BWE. The second example uses a modification of the classical inventory control policies to eliminate BWE.
Research limitations/implications: This paper could initiate research in an area which would help supply chain researchers
and managers to understand why some companies are able to contain BWE and others are not.
Findings: Based on these two empirical case studies, the paper argues that managing BWE is a strategic initiative by organ-
ization and the best approach is a combination of several tactical initiatives.
Originality/value: This paper briefly summarizes the managerial approaches to tame BWE in two different contexts. The two
examples have some similarities, differences and offer unique insights related to managing BWE.
Keywords: India, Supply chain management, Demand management, Consumer durables
Paper type Research paper
based on the perception of the channel member or supply imbalances. It may be worthwhile to reiterate
a supply chain partner close to the demand. that BWE is not only caused by any one of these
(2) Based on the inflated demand, capacity enhance- aspects of the supply chain but could also be owing to
ment decisions (or sourcing contracts have been any combination of these aspects.
obtained) which partially or fully contribute to In the cited articles several managerial responses to
the increase in the fixed cost leading to a competi- stem or contain the BWE are suggested. They include
tive disadvantage position. use of point-of-sale data to forecast demand, electronic
(3) In a competitive set up, the pressure to utilize the data interchange for order information sharing, vendor-
installed capacity to achieve economics of scale managed inventory, discount for sales information
is high, leading to a rate of production and sharing, lead time reduction, combining truck delivery,
higher than the consumption rate. internet-based ordering, every day low price, activity
(4) The inventory flow in the system and stock levels based costing, sharing sales, capacity and inventory
at various stages in the supply chain are driven by data (to avoid shortage gaming), allocation method-
the complicated dynamics of price discounts and ology based on past sales, etc. It is useful to note that
economics of transportation. these measures would contain one of the reasons respon-
(5) Thus, even when the production is more than the sible for BWE. A successful strategy to contain BWE
projected demand, stock may not be available to would require a combination of several such measures
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)
78 Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
edible oils, fabric care, skin care and processed food. It were 32 stock locations, 1,000 distributors and 1.2
recorded a turnover of Rs. 8 billon in the year 2003. million retailers which enabled HOC to reach the rel-
ROC was larger than 30 per cent. Sales registered evant customer segment. The manufacturing activity
(during 1999-2003), a combined annual growth rate of was relatively simple. No major capacity constraints
6 per cent and the corresponding profit figure of 16 per were anticipated. Part of the capacity cushioning was
cent. HOC reached nearly 100 million people through facilitated by contract manufacturing. Sourcing was
1.7 million retail outlets. In addition, it sold 46 million restricted to commodity buying. A handful of items
consumer packs every month, reached 18 million house- were purchased based on commodity auction.
holds and employed 1,000 people.
Sales Fluctuation
Growth Strategy
The sales fluctuated widely. The ratio between peak and
The primary focus of the business strategy is to aim at minimum sales for popular brands over a period of a
market leadership, by building brand, strengthening year was 3:1 (see Figure 1). Sales within a month
the distribution system, controlling cost and using inno- were extremely skewed. On an equal period of ten
vative management practices to support the business days (three consecutive ten days), the company recorded
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)
activities. HOC has significant presence in the global 10, 28 and 62 per cent sales. This meant roughly two
market. HOC wanted to support its growth plan by thirds of the sales happened in the last ten days of any
increasing use of technology, value added products, month.
repositioning hair oil (a commodity) as a personal care
product and converting edible oils as a nutrient-based Planning Cycle
product.
The planning cycle was 15 days. The planning was
frozen three months before. Quarterly targets led to
Managerial Impediments
the sales push in the last month. The inevitable conse-
quence was inventory build up and mal-distribution.
However, there are number of issues which did not
Customer dissatisfaction, reduced sales and eroded prof-
allow HOC to grow rapidly. They included inaccurate
itability are the add on factors.
forecasting (a result of non-sophisticated mathematical
models), sales opportunities lost as a result of mal-distri-
bution, non-availability of stock and low delivery per- Information Systems
formance reflecting in unacceptable service level.
There were issues related to shrinkages, damages and The information systems were primitive. Most of the
product sold in the market after the useful life time. planning systems were Excel spreadsheet based. There
Information availability on stock was sparse. Depart- was no system related to distribution planning. Many
mental silos and a myopic approach to business led to
sub-optimal solutions. As a consequence of inter depart-
mental transfer of stock, and high inventory at various
locations contributed to the increased cost of delivery.
Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008 79
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
Tactical Measures
80 Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
CASE STUDY 2 – SKITTLES INDIA LIMITED designated as A, B, C and D. These sequential processes
(SIL) in turn generated various sub-processes based on the end
product specifications. Not all skittles needed to go
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)
Product(s)
Competition
Skittle as a product was characterised by three basic
attributes, the raw material used, final colour of presen- SIL had two national-level competitors, both enjoying a
tation and the pack size in which it was offered. Differ- relatively smaller market share. Skittles were also pro-
ent market segments would require independent duced by a host of (unorganized sector) local manufac-
products in terms of composition, colour and size. turers. The presence of a large unorganized sector
From the marketing point of view, skittles appeared in producing and selling skittles at very low price, charac-
different brands, characterised by several colours terised by dubious quality and non-uniform sizes, com-
within a brand and a final stock-keeping unit based on plicated the market dynamics.
its presentation in terms of size. SIL manufactured and
sold 170 types of skittles under 300 brands.
Planning
Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008 81
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
SKU January February March April May June July August September October November December
turing plan (what, how much, when and where to Logistics Function
produce). After completing production, issues related
to allocation (which branch would get how much of The logistic function was charged with the responsibil-
what item) was decided. The finished goods inventory ity at SIL, to ensure safe custody of finished goods, stock
distribution to branches took place according to the inte- accounting of the material received from the manufac-
grated business plan and the consequential sales plan, turing locations, and accurate despatch of finished
manufacturing plan, allocation plan and the despatch goods to various branches. On an average, four trucks
plan. (approximately ten MT each) of material arrived in a
day at the CWH and an equal quantity of material was
despatched daily from the CWH. Each truck contained
Replenishment Policy about 300 cartons of finished goods.
Since SIL operated on a sale-based replenishment
system, reorder points (ROP) and reorder quantities Despatch Plan
were calculated based on the lead time for replenish-
ment, and its variations, combined with demand fluctu- This despatch plan was arrived at by considering: the
ations. When stocks at the branch warehouses fell to the stock available in the CWH; the immediate projected
ROP level an order for reorder quantity (ROQ) was inflow from manufacturing; the prevailing market con-
placed on CWH for replenishment. For certain classes dition at the branch location; the peculiarities of the
of items, a flexible ROQ was followed (see Appendix branch, item and item branch combination; truck des-
for additional details of circulation level). patch plan and truck availability to the branch.
82 Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
An elaborate computer communication network had planning at manufacturing locations aimed to maintain
been set up between the CWH and branches so that at CWH stocks at predetermined levels based on:
the end of the business day, the branches transmitted
the exact quantity that had been invoiced during the (1) ABC classification of the item at the national
day, which was converted as order pending on CWH. level.
Based on the pending order, it took less than half a (2) The stock position at CWH.
day to identify the availability of stock at the CWH. (3) Days of stock cover (stock at CWH divided by
At the CWH, cumulative requirements of a stock item the average daily forecasted sales).
across branches, and the stock available was compared
to plan for any rationing on demand-supply. Deviations Constraints in production relate to lot size constraints
were considered on special circumstances and merits. (skittles necessarily have to be made in certain lot
The CWH computer kept track of how much quantity sizes), production line balancing constraints (balancing
was in circulation for a skittle, including the stock in between whites and colours), total capacity constraints,
branch, stock on transit, stock in the warehouse allo- constraints on total quantity of specials and constraints
cated for a branch, orders to CWH from branches. Nor- on material availability for each stage of manufacturing.
mally, the physical stock in branch and the orders The replenishment policy at SIL was an assortment of
pending from the branch on CWH would constitute periodic replenishment system, classical ROP, ROQ
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)
the safety stock that was to be kept at the branch for a model and a variation of ROP, ROQ model called circu-
specific item. lation level. All items at the CWH were classified in the
The replenishment system was triggered by a sale in three district groups (see Table 3).
the branch. As and when sales were invoiced, an order The ROP was influenced by the following factors:
was placed in the CWH for refilling. If stock was avail-
able, it was refilled and order was responded to by a des- (1) Daily demand estimate (obtained by dividing the
patch. If stock was not available at the CWH, refill order all India sales forecast by 365).
was converted as an order on manufacturing where it (2) Fluctuation factor (determined on a case to case
joined a queue for further processing (see Figure 3). basis for item branch combinations).
The level of stocks maintained at CWH for skittles was (3) Replenishment lead time (includes all time
based on estimates of manufacturing cycle time and delays due to order communication, order proces-
demand fluctuations on the daily forecast of all India sing, allocation and load building time and transit
sales (i.e. annual forecast divided by 365). Production time).
Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008 83
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
84 Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
(4) Several management initiatives such as redefin- (8) As pointed out by the original authors, the BWE
ing inventory norms, moving from target-based is a consequence of rational response by the
dispatch to sales-based dispatch acted as facilita- members of the supply chain. In a way the
tors. optimal response of the individual elements is
(5) The taming of BWE is not yet complete in HOC, leading the reduced efficiency of the overall
but the organization is able to get a handle on the chain. This in a way brings back the control and
issues responsible for it. co-ordination issues in a supply chain to a sharp
(6) The basic sources of inefficiencies in supply focus.
chain, such as information silos, inadequate (9) It is also useful to note that BWE can be one of
stocks, mal-distribution and inaccurate forecast- the indicators of lack of co-ordination in the
ing are minimized. supply chain. Actually, when the co-ordination
is well managed, the ill-effects of Bull Whip
would also diminish.
Unique Features of SIL Implementation
(2) SIL basic strategy is convert the inventory flow to In this article, we have documented the experiences of
a pull-based system. containing BWE based on two case studies. We have
(3) Supporting infrastructure (information system), also analyzed the similarities and differences in these
prioritization of service level, close monitoring two case studies. Based on this empirical analysis, we
systems, batch production and judicious combi- have evolved a frame of reference to contain BWE. We
nation of dispatch schedule all contribute to the believe the work presented in this paper is complemen-
operational efficiency of the logistics system. tary to the original contribution on BWE. The implemen-
tation framework needs to be strengthened by additional
case studies from a variety of situations. In this sense, this
STEP TO TAME BWE contribution initiates research in an area, which would
help the supply chain researchers and managers to under-
(1) Managing BWE is predominately a strategy stand why some companies are able to contain BWE and
initiative, not a tactical one. others are not.
(2) BWE would surface only when the manufactur-
ing set up is organized as made to stock.
NOTE
(3) BWE would be minimum if the operations can be
reorganized as made to order. 1. While the discussion presented in this section is based
(4) Taming BWE is a journey to transform the oper- on real life experience, the name of the company is
ations from manufacturing to stock to manufac- changed to protect the business interest of the organiz-
turing to order. This journey is different, not ation.
easy and is context dependent.
(5) The first tactical move is to convert the plan-
produce-dispatch service sequence to a pull- REFERENCES
system driven by demand.
(6) BWE taming needs a set of comprehensive Kamath, V. (2005). “ERP at Marico”, Presentation made in
37th ORSI Annual Convention, Indian Institute of Man-
initiatives and systems. Single isolated efforts,
agement, Ahmedabad, 8-11 January.
however big or significant they are, may have a Lee, H.L., Padmanabhan, V., and Whang, S. (1997a). “Infor-
limited effect. mation distortion in a supply chain: the Bullwhip effect”,
(7) It is much easier to tame BWE when the elements Management Science, 43 (4), pp. 546-558.
of the supply chain are under the control of a Lee, H.L., Padmanabhan, V., and Whang, S. (1997b). “The
single management (the documented experience bullwhip effect in supply chains”, Sloan Management
of Barilla supports this). Review, 38 (3), Spring, pp. 93-102.
Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008 85
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
Managing the Supply Chain Concepts, Strategies & 116 stock and sell shade(s) plus many
Case Studies, 2nd ed., Tata McGraw-Hill. specials.
Hammond, J.H. (1994). Barilla SpA (A), Harvard Business Product Low priced, non-uniform pack mainly for pre-
School case 6-694-046, Boston, MA.
E: sence in cheap end of domestic segment.
Sergio, S. (1984). Benetton (A), Harvard Business School
Case 9-685-014, Boston, MA.
Product quality fair. Non-uniform size is a
consequence (managerial) of reduction in
size to offer the product at lower price. Com-
APPENDIX: REPRESENTATIVE PRODUCT petition mainly from unorganized sector.
PROFILE OF SIL Brand familiarity high but image average.
Range wide though very few specials.
Product Quality: Very good, pricing premium. 400 gm Specials generally discouraged for this
A: pack (ten packs in each unit) targeted for product. Forecast stable. Distribution mainly
industrial and domestic users. Distribution through dealer. Seasonality high.
both direct to industries and through dealer. Product Exclusively for manufactures. Product quality
Wide shade range includes 162 stock and F: good: 5 kg pack. Very popular among manu-
sell shades and several on specials. Brand facturer – exporters. Seasonality subdued,
image good. Seasonality is not very strong pricing is high. Competition average. Brand
though variations in shade demand is high. in growth stage of Brand Life Cycle.
Competition – average. Future looks bright Growth anticipated. Non-uniform sales
with anticipated growth. across the regions, yet brand image good.
Product Quality: good. Pricing premium 200 gm Product Standard product, price average, medium
B: packs with 20 packs in each unit. Target G: quality. Sold in 5 kg packs for manufactures.
segment purely domestic. Distribution Distribution as with F, mainly direct sup-
mainly through dealers. Though wide shade ported by industrial jobber network. Good
range include 183 stock and sell shades but growth prospects. Seasonality average.
not many on specials. Product in decline Brand image good.
stage of brand life cycle. Seasonality
present. Competition high both from other
companies as well as from other brands of
Success. Brand image still good in many Figure A1 (over page) shows inventory replenishment pro-
areas. cedure.
86 Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008
MANAGING BULLWHIP EFFECT: TWO CASE STUDIES
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)
Journal of Advances in Management Research vol. 5(II) pp. 77– 87, 2008 87
This article has been cited by:
1. Alia Nadhirah Ahmad Kamal, Yudi FernandoReview of Supply Chain Integration on Green Supply Chain Management (GSCM)
348-368. [CrossRef]
Downloaded by IQRA UNIVERSITY At 04:11 20 September 2015 (PT)