A month ago, manager Monica Barros published a post about how the internet can bring the industry closer to the consumer market. The text tells how some manufacturing companies have created their own e-commerce as a direct sales channel for their customers and others have their products advertised on the pages of large retailers, but are responsible for delivering the product to the final consumer.
In this context, the total finished product inventory of the supply chain becomes the responsibility of the industry. While it would be up to retail to advertise and sell, the industry would be responsible for the entire logistical operation, making the sold item available to the buyer through production, storage and transport.
This increase in logistical responsibility for the industry brings a series of complexities to the operation, such as larger inventories, the need for a more dispersed network, transport fractionation, among others. However, it can also bring benefits arising from the approximation with the final consumer. And one of the main benefits of reducing intermediaries in the product flow is minimizing the bullwhip effect.
The bullwhip effect is caused by the lack of visibility of the real demand along a supply chain, which is a consequence of the format of the traditional relationships between the links. In general, each link in the chain tries to manage its demand in the best possible way, maintaining inventory levels that ensure supply to its customer. The independent management of the chain's inventories leads to peaks and valleys in orders that bring losses to the links in the chain at various levels. The further away from the final consumer, the greater the valleys and peaks in demand tend to be and the greater the consequences of the bullwhip effect, leading to excess inventory in some moments and stockouts in others.
Figure 1 – Illustration of the Bullwhip Effect
Source: Slack at al (1999)
To reduce the bullwhip effect, companies have sought greater supply chain integration in an attempt to increase visibility into actual demand and inventories. However, this type of relationship requires advanced technological systems and a lot of trust between suppliers and customers in the chain, which is not easy to conquer in a context in which each company seeks to maximize its own profit.
By extinguishing the intermediaries between the industry and the final consumer, the search for integration and synchronized decisions between the links in the chain is no longer necessary, and the bullwhip effect automatically ceases to exist. This is because the industry demand planning starts to have as input the real consumer demand.
In this way, e-commerce can put an end to one of the great villains that have been haunting traditional supply chains since the 60s, the bullwhip effect, by bringing the industry closer to the true financier of the entire chain: the final consumer.
References
https://ilos.com.br/web/fraldas-cerveja-e-efeito-chicote/
https://ilos.com.br/web/internet-e-suas-mudancas-constantes-na-logistica-das-empresas/
https://ilos.com.br/web/uma-revisao-dos-programas-de-resposta-rapida-ecr-crp-vmi-cpfr-jit-ii/
SLACK, N. et al. Production management. São Paulo: Atlas, 1999.
Beatris Huber
https://ilos.com.brManaging Partner of ILOS, Master in Business Administration from COPPEAD/UFRJ with extension at the European Business School – EBS, Germany and Business Administration from UFRJ. More than 10 years of experience in training and consulting projects, focusing on Logistics and Supply Chain. In the training area, he developed company games and online courses and today teaches classes in Data Analysis, Inventory Management, Warehousing Management, in addition to applying business games such as Beer Game in open and in-company programs in companies from different segments, such as Coca -Cola, Nestlé, ThyssenKrupp, Votorantim, Carrefour, Mallinkrodt, Souza Cruz, Via Varejo, Monsanto, Itaú, Renner, Ipiranga, among others. In consultancy, he carried out projects such as Redefinition of the Logistics Network, Inventory Management, S&OP Process Structuring and Diagnosis of Storage and Transport Operations in companies such as Coca-Cola, Souza Cruz, Editora Moderna, Petrobras, Ducoco, Ultragaz, Silimed, Eudora among others.
