Distorted information from one end
of a supply chain to the other can
lead to tremendous inefficiencies:
excessive inventory investment, poor
customer service, lost revenues,
mis^ided capacity plans, ineffective
transportation, and missed
production schedides. How do
exaggerated order swings occur? What
can companies do to mitigate them?
N
ot long ago, logistics executives at Procter &
Camble (P&C) examined the order patterns for one of their best-selling products.
Pampers. Its sales at retail stores were fluctuating, but
the variabilities were certainly not excessive. However,
as they examined the distributors' orders, the executives were surprised by the degree of variability. When
they looked at P&C's orders of materials to their suppliers, such as 3M, they discovered that the swings
were even greater. At first glance, the variabilities did
not make sense. While the consumers, in this case,
the babies, consumed diapers at a steady rate, the demand order variabilities in the supply chain were amplified as they moved up the supply chain. P&G
called this phenomenon the "bullwhip" effect. (In
some industries, it is known as the "whiplash" or the
"whipsaw" effect.)
When Hewlett-Packard (HP) executives examined
the sales of one of its printers at a major reseller, they
found that there were, as expected, some fluctuations