BULL WHIP EFFECT
As we move along the supply chain from the suppliers to the manufacturers the demand of the goods has been increased which increases cost and reduce profitability.
for example:
The consumers asks for a soap in a shop, as a dealer he needs a stock to deliver the goods in right time to the people, so the dealer orders 5 Soaps to a manufacturer. so manufacturer produces 10 soaps at a time to increase stock and also to satisfy the customer demand. if you see in each and every stage the demand of the soap has been increased and it increases the cost and reduce the profitability. This is how the demand affects the supply chain and increases the cost.
FACTOR CONTRIBUTING TO BULL WHIP EFFECT:
<!--[if !supportLists]-->• <!--[endif]-->Demand forecasting practices
<!--[if !supportLists]-->– <!--[endif]-->Economic ordering quantity – maintain Min-max inventory – Reorder level of inventory.
<!--[if !supportLists]-->• <!--[endif]-->Lead time
<!--[if !supportLists]-->– <!--[endif]-->Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs
<!--[if !supportLists]-->• <!--[endif]-->Batch ordering
<!--[if !supportLists]-->– <!--[endif]-->Fixed ordering costs
<!--[if !supportLists]-->– <!--[endif]-->Impact of transportation costs (e.g., fuel costs)
<!--[if !supportLists]-->• <!--[endif]-->Price fluctuations
<!--[if !supportLists]-->– <!--[endif]-->Promotion and discount policies
<!--[if !supportLists]-->• <!--[endif]-->Lack of centralized information
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