Tag Archive - Bullwhip Effect

Avoiding TV Demand Driven Stock Outs

On Thursday night RTE aired episode 8 of the hugely success cookery series, ‘Neven Maguire Home Chef.’ With over 315,000 viewers tuning in every week this show exerts a powerful influence on the buying habits of the Irish consumer.

Neven Maguire Home Chef

The format of the show is not new as it criss-crosses familiar territory of other successful Irish TV chefs such as Martin Corrigan’s ‘Mad About Fish’ series and Richard Corrigan’s ‘Richard Corrigan Knows Food’ series. Each chef presents their own unique twist on familiar recipes and what’s interesting about these shows is that they visit indigenous Irish food producers and feature their produce in the recipes.

In episode 8 Neven Maguire visited two leading Irish food brands, Flahavans and Brady Ham. The previous week he visited another leading Irish food brand, McCambridges.

John Flahavan is the 6th generation of his family to work at Flahavans, owning the company that bears his name. The company itself is thought to be the oldest privately owned company in Ireland – it’s certainly the oldest food company. Eighty years ago, there were seventy oat mills in Ireland, now there are just two.

Brady Ham Neven Maguire Leinster Leader

From Left: Pat Creighton Production Manager at Brady Ham, Neven Maguire and Brady's Ham MD Bill O'Brien. Source: Leinster Leader

The Brady family started curing ham the old fashioned way in the 1970s and the company is now the largest producer of traditionally cured ham in the country. Now run by Tipperary Farmer, Bill O’Brien, he maintains the age old tradition of curing ham at Brady’s, especially the butchery skills which are needed to bone and reshape the hams.

McCambridges has a long history of food production and retailing going back to 1945 but now it concentrates exclusively on its brown soda bread with leading brands such as Irish Stoneground Wholewheat Brown Bread. It’s no surprise that McCambridges is the largest user of buttermilk in the country.

With over 300,000 consumers tuning in, it would be interesting to measure the impact being featured has on the stock levels in shops of the various producers in the days following the airing of the episodes.

Evidence from the Mad About Fish series demonstrated that demand for specific fish types in fish mongers across the country increased dramatically following the airing of each episode.

In previous posts we have talked about seasonal supply chain disruptions and the challenge of beating the bullwhip effect: the (positive) impact of being featured on a high profile TV programme is another challenge that production teams must take into account. A most welcome challenge in these challenging economic times.


Posted on March 2, 2012 in Media, Supply Chain by
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Beating the Bullwhip

The Bullwhip Effect describes the problems of trying to cope with fluctuating customer demand and the need for holding an inventory to cover the changes. J Forrester observed that the further up the supply chain one goes, the greater the inventory contingency required, and the greater the costs associated.

Bullwhip

Source: Wikipedia

Theoretically beating the bullwhip is simple – all that is required is to ensure that orders match demand precisely in any given operating period. Clearly this almost impossible in reality, so instead the accurate management of safety stock levels and precise forecast calculations are essential to reduce the impact up the supply stream.

Experts suggest that moving from forecast-driven to demand-driven supply chain methodology will be more successful than statistical analysis, as goods are manufactured to order based on up-to-the-minute data directly from the retailer. Known as ‘Kanban’ within manufacturing industries, demand-driven supply chains gather sales data from the Point of Sale (POS) terminals in an organisation’ stores, allowing collection of highly accurate customer demand data which can then, according to business policies, be made available for use by any partner within the supply chain.

The genius of Kanban-based supply is that information sharing allows every link in the supply chain access to the customer demand data which can then be used to inform their internal inventory buffers. This open data dispensation actually benefits business up and down the supply chain, adding an additional layer of financial protection to each by avoiding the costs associated with an oversized safety buffer of stock.

Implementation of such a demand-driven system can be fraught with difficulties, both technical and political, but the use of externally hosted cloud services such as Celtrino’s Smart Admin platform can help address many of these. Smart Admin allows businesses to retain their own in-house systems whilst providing a data sharing interface for accessing the relevant data from their supply chain partners.


Posted on February 8, 2012 in B2B Platform in the Cloud, B2G e-invoicing, Business Process Outsourcing, Celtrino Platform, Cloud Computing, Supply Chain, Supply Chain Performance by
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What is the ‘Bullwhip Effect’?

First coined by J Forrester in his seminal paper Industrial Dynamics back in 1961, the phrase ‘bullwhip effect’ is used to describe the knock on effects of a single product and its demand on the wider supply chain. Forrester found that in forecast-driven distribution channels, a change in demand had an ever increasing effect the further back into  the supply chain he went. When graphed, these oscillating changes in demand appear as a series of waves which get greater in size, reminiscent in appearance of a cracking whip. Because Forrester is credited with documenting the bullwhip phenomenon, it is also known as the Forrester effect by some.

Bullwhip Effect and the Supply Chain

Source: Wikipedia

The effect is created by statistical demand by suppliers attempting to forecast customer demand to properly position stock and raw materials at the correct points for timely delivery. Forecasting provides some degree of statistical accuracy, but the vendor must carry an inventory buffer to cover unforeseen fluctuations. Moving further up the supply chain, manufacturers and suppliers of raw materials must also maintain an inventory buffer to satisfy the demands of their own customers; because these demands can shift to even greater degrees, the “safety stock” levels must also be greater. Should downstream demand fall, the supplier is left carrying inventory which they are unable to shift, creating the “bullwhip effect”.

Forrester also observed that the bullwhip effect can be caused by a number of factors relating to human error or operational problems. Misapplication of statistical forecasting techniques or internal and external communication issues all play a part in oversized inventory buffers. So too do perceptions regarding supplier’s ability to meet demand and fulfil orders for a variety of reasons.

The bullwhip effect has an effect on an organisation’s bottom line, through inefficient production or stock short falls. The obvious knock-on effect is a reduction in customer service and satisfaction levels which has a definite negative, and therefore costly, impact on a brand’s reputation.

 


Posted on February 3, 2012 in Supply Chain, Supply Chain Management, Supply Chain Upstream and Downstream by
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