Hockey stick phenomenon

To get the quantity discount, DO may order 10,000 bottles over the last week even though it expects to sell only 3,000. hi this case, cycle inventory in the supply chain goes up in spite of the fact that there is no lot-size-based quantity discount. The situation in which orders peak toward the end of a financial horizon is referred to as the hockey stick phenomenon because demand increases dramatically toward the end of a period, similar to the way a hockey stick bends upward toward its end This phenomenon has been observed in many industries. One possible solution is to base the volume discounts on a rolhng horizon. For example, each week the manufacturer may offer DO the volume discount based on sales over the past 12 weeks. Such a rolling horizon dampens the hockey stick phenomenon by making each week the last week in some 12-week horizon. 

Information distortion is also observed in threshold incentives offered by companies to their sales staff. Under these incentives, staff is offered rewards for crossing sales thresholds during a specified period of time (e.g., a quarter). The problem observed is that sales effort and orders peak during the last few weeks of the quarter, as salespeople try to cross the threshold. This pattern, in which sales peak close to the end of the evaluation period, is referred to as the hockey stick phenomenon. This information distortion arises because the incentive is offered over a fixed time period, making the last few weeks of each quarter a period of intense activity for all sales staff. 

This lack of discipline arises from efforts to sweeten the income statement. It starts in the corner office where eyes focus on earnings-driven bonuses. It extends downward to the sales force and factory, taking the form of promotions, discounts, or just plain hustling of accounts. As a result, half the production goes out the door as the sun sets on the fiscal period. Some refer to this phenomenon as the hockey stick effect. Production activity turns up rapidly at the end of the period, resembling the blade of a hockey stick. 

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