Diaper supply chain

The lack of coordination in a supply chain increases variability and hurts the supply chain surplus. We discuss the impact of the bullwhip effect on various costs in the P G diaper supply chain. 

Another key challenge at the tactical level is to take into account the dynamics of the supply chain. Indeed, in recent years many suppliers and retailers have observed that while customer demand for specific products does not vary much, inventory and back-order levels fluctuate considerably across their supply chain. For instance, examining the demand for Pampers disposal diapers, executives at Procter Gamble noticed an interesting phenomenon. As expected, retail sMes of the product were fairly uniform there is no particular day or month in which the demand is significantly smaller or larger than any other. However, the distributors placed orders to the factory that fluctuated much more than retail sales. In addition, P G s orders to its supphers fluctuated even more. This increase in variability as we travel up in the supply chain is referred to as the Bullwhip effect. For more on this effect, see Simchi-Levi et al. (1999). 

Diapers are a steady-selling item at the retail store. Yet, in the past, Procter and Gamble (P G) faced large demand swings that percolated through the supply chain. These demand swings, termed the bullwhip effect, caused increased order volatility to suppliers and plants. One reason for such volatility was the different price brackets that were offered to retailers every day. Every retailer adjusted orders to attain the lowest cost procurement price for products. In addition, they offered products with volume discounts, discounts for joint purchases, customer backhaul discounts, and so on. The net effect was that the orders, i.e., demand seen by P G, was unpredictable, even if retail demands were reasonably stable. The impact of these demand fluctuations was substantial. Additional plant... 

Underlying demand for diapers over a relatively short period of time, say a few monfhs, fends to be quite sfable, as one would predict— babies clearly go through them at a pretty steady rate, as any parent knows first-hand However, P G noticed that, although underlying consumer demand for Pampers was sfable, fhe orders from refailers to fheir wholesalers were more volatile than consumer demand, while orders from wholesalers to P G were more volatile still, and orders from P G to ifs suppliers were more volatile still. Indeed, the bullwhip effect is formally defined by fhis phenomenon, an increasing level of variabilify in orders af successive upsfream stages of the supply chain. 

---