A typical supply chain has several layers of stakeholders: from suppliers of raw material to manufacturers, distributors, retailers and finally the end customer. The intricate balance of supply and demand across these stakeholders relies on accurate two-way communication.
The bullwhip effect happens when distorted demand signals oscillates back throughout the chain, often amplified at every stage, leading to a multitude of negative consequences, such as: unfounded build-up or ramp-down of capacity and stock, inefficient and costly production, damaged supplier/customer relations, lost revenues, and more…
Companies need to prepare for a future with an increased frequency in changes to demand patterns, not only driven by pandemics, but also new technologies and disrupting business models. Supply chain agility will be key to excel in this new reality.
In response, companies need to be ready to shorten their planning and execution lead-times. Streamline their logistics and supply chain footprint. Improve their supplier relationships to allow for smaller and more frequent deliveries.
Also, companies should constantly monitor their inventories and safety stock levels to ensure right amounts of the right things at the right time (read more on topic in 3 considerations for a post-pandemic supply chain).
However, even if increased agility will dampen the effects from shifting demand, companies should also improve their ability to identify and pro-actively avoid future bullwhips:
1. Increase visibility and collaboration across all stakeholders
Be aware of your customers’ and end-customer’s needs – give your organization the tools to differentiate between short-term variability and long-term changes to market demand. Work to minimize future bullwhip effects through improved communication and frequent information sharing across your supply chain, as part of a robust S&OP or IBP process. Trust is key.
Take detailed stock of not only your own inventory, but also your customers inventories. Many companies don’t realize what the inventory of their customers looks like, making it difficult to differentiate between a true demand versus re-stocking activities. Encourage your larger customers to share information, or even install vendor managed inventories (VMI) of your standard items
Contact us to learn more on Integrated Business Planning and how this could help your supply chain excel!
2. Leverage new technologies to reduce uncertainties
Companies who invest in good supply chain systems, with the ability to plan and replan based on multiple scenario outcomes, will ultimately manage better than those who will not. Embrace digital technologies to enhance visibility across the end-to-end supply chain, including external stakeholders. The ability to pro-actively identify and deal with distorted demand signals will be key going forward – requiring improved real-time data handling and visualization, as well as the ability to simulate multiple outcomes.
Improve data sharing with your supply chain partners. Examine ways to improve access to external data through supplier and customer portals, providing real time updates on stock availability and upcoming demand.
Contact us to learn how SETPOINT Solutions can improve visibility of your working capital, allowing for sophisticated forecasting and simulations!
3. Lift the knowledge floor and increase the general supply chain awareness level
The first step in avoiding future bullwhip effects is making sure as many people as possible understand what causes them.
Even though the automation and digitalization of things will increase, human intelligence and experience cannot be fully replaced (yet!). Data is not enough, someone must be there to interpret, communicate and act on its meaning.
Lifting the knowledge roof is not enough, we also need to activate and lift the knowledge floor – creating a common platform of understanding across the organization in how your version of an optimal supply chains should operate.
Contact us to learn how SETPOINT Academy can help upskill and reskill your organization!