The Value of Information Xiaohong Pang Automation Department Shanghai Jiaotong University
The Value of Information Xiaohong Pang Automation Department Shanghai Jiaotong University
The Bullwhip Effect: Managerial Insights Exists,in part,due to the retailer's need to estimate the mean and variance of demand. The increase in variability is an increasing function of the lead time. The more complicated the demand models and the forecasting techniques,the greater the increase. Centralized demand information can significantly reduce the bullwhip effect,but will not eliminate it
The Bullwhip Effect: Managerial Insights Exists, in part, due to the retailer’s need to estimate the mean and variance of demand. The increase in variability is an increasing function of the lead time. The more complicated the demand models and the forecasting techniques, the greater the increase. Centralized demand information can significantly reduce the bullwhip effect, but will not eliminate it
Conclusion The main factors contributing to the Bullwhip Effect are: ■Batching ordering ■Price fluctuation ■Inflated orders Demand forecasting ■Long lead times
Conclusion The main factors contributing to the Bullwhip Effect are: Batching ordering Price fluctuation Inflated orders Demand forecasting Long lead times
Lecture Outline Introduction ■The Bullwhip Effect ■Effective Forecasts Information for the Coordination of Systems Locating Desired Products Lead time reduction Integrating the Supply Chain
Lecture Outline Introduction The Bullwhip Effect Effective Forecasts Information for the Coordination of Systems Locating Desired Products Lead time reduction Integrating the Supply Chain
Methods for Coping with the Bullwhip Effect Reduce uncertainty POS,Sharing information Sharing forecasts and pricing policies ■Reduce variability Eliminate promotions Year-round low pricing Reduce lead times EDl,e-marketplace ■Cross docking Strategic partnerships Vendor managed inventory ■Data sharing
Methods for Coping with the Bullwhip Effect Reduce uncertainty POS, Sharing information Sharing forecasts and pricing policies Reduce variability Eliminate promotions Year-round low pricing Reduce lead times EDI, e-marketplace Cross docking Strategic partnerships Vendor managed inventory Data sharing
Reduce Uncertainty To reduce the bullwhip effect,one of the most frequent suggestions is to reduce uncertainty,that is,to provide each stage of the supply chain with complete information about actual customer demand. POS,Sharing information on customer demand Sharing forecasts and pricing policies ■ Even when each stage uses the same demand data,the same forecasting method and the same ordering policy,the bullwhip effect will continue to exist
Reduce Uncertainty To reduce the bullwhip effect, one of the most frequent suggestions is to reduce uncertainty, that is, to provide each stage of the supply chain with complete information about actual customer demand. POS, Sharing information on customer demand Sharing forecasts and pricing policies Even when each stage uses the same demand data, the same forecasting method and the same ordering policy, the bullwhip effect will continue to exist
Reduce Variability ■ The bullwhip effect can be diminished by reducing the variability inherent in the customer demand process. Eliminate promotions Year-round low pricing
Reduce Variability The bullwhip effect can be diminished by reducing the variability inherent in the customer demand process. Eliminate promotions Year-round low pricing
Reduce Lead Times Lead time reduction can significantly reduce the bullwhip effect throughout a supply chain.Lead times include two components: ■Order lead times The time it take to produce and ship items It can be reduced by using cross-docking Information lead times The time it take to process an order It can be reduced through the use of EDl
Reduce Lead Times Lead time reduction can significantly reduce the bullwhip effect throughout a supply chain. Lead times include two components: Order lead times The time it take to produce and ship items It can be reduced by using cross-docking Information lead times The time it take to process an order It can be reduced through the use of EDI
Strategic Partnerships Strategic partnerships change the way information is shared and inventory is managed within a supply chain,possibly eliminating the impact of the bullwhip effect. Vendor managed inventory In VMI,the manufacturer does not rely on the orders placed by a retailer,thus avoiding the bullwhip effect entirely
Strategic Partnerships Strategic partnerships change the way information is shared and inventory is managed within a supply chain, possibly eliminating the impact of the bullwhip effect. Vendor managed inventory In VMI, the manufacturer does not rely on the orders placed by a retailer, thus avoiding the bullwhip effect entirely
Example: Quick Response at Benetton ■ Benetton,the Italian sportswear manufacturer,was founded in 1964.In 1975 Benetton had 200 stores across Italy. Ten years later,the company expanded to the U.S.,Japan and Eastern Europe.Sales in 1991 reached 2 trillion. Many people attribute Benetton's success to successful use of communication and information technologies
Example: Quick Response at Benetton Benetton, the Italian sportswear manufacturer, was founded in 1964. In 1975 Benetton had 200 stores across Italy. Ten years later, the company expanded to the U.S., Japan and Eastern Europe. Sales in 1991 reached 2 trillion. Many people attribute Benetton’s success to successful use of communication and information technologies