Lack of Supply Chain Coordination and the Bullwhip Effect

1 LACK OF SUPPLY CHAIN COORDINATION AND THE BULLWHIP EFFECT 

Supply chain coordination improves if all stages of the chain take actions that are aligned and increase total supply chain surplus. Supply chain coordination requires each stage of the supply chain to share information and take into account the impact its actions have on other stages. 

Demand Fluctuations at Different Stages of a Supply Chain 

Hewlett-Packard (HP) also found that the fluctuation in orders increased significandy as they moved from the resellers up the supply chain to the printer division to the integrated circuit division (ibid.). Once again, although product demand showed some variabiUty, orders placed with the integrated circuit division were much more variable. This made it difficult for HP to fill orders on lime and increased the cost of doing so. 

Studies of the apparel and grocery industries have shown a similar phenomenon The fluctuation in orders increases as one moves upstream in the supply chain from retail to manufacturing. Barilla, an Italian manufacturer of pasta, observed that weekly orders placed by a local distribution center fluctuated by up to a factor of 70 in the course of the year, whereas weekly sales at the distribution center (representing orders placed by supermarkets) fluctuated by a factor of less than three (Hammond, 1994). Barilla was thus facing demand from the distribution center that was much more variable than customer demand. This led to increased inventories, poorer product availability, and a drop in profits. 

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