Question 107 - CPIM-Part-2 discussion

The bullwhip effect is a supply chain phenomenon that causes fluctuations in demand to amplify as they move upstream, from the consumer to the retailer, to the distributor and then to the producer1.The bullwhip effect can result in inefficiencies and costs such as excess inventory, lost revenues, superfluous capacity and poor customer service1.

One of the activities that would be effective to mitigate the bullwhip effect is to reduce lead times, which are the time intervals between placing an order and receiving the goods2.Reducing lead times can help to reduce the uncertainty and variability in demand, as well as improve the responsiveness and flexibility of the supply chain2. By reducing lead times, the supply chain partners can order less frequently and in smaller quantities, while still meeting customer demand.This can reduce the need for safety stock, cycle stock and pipeline stock, and thus lower the inventory carrying costs and risks2.

The other options are not effective activities to mitigate the bullwhip effect.Implementing track and trace technology, which is a method for tracking the origin, history, location and status of a product or its parts throughout the supply chain3, may help to improve the visibility and transparency of the supply chain, but it may not reduce the demand fluctuations or inventory imbalances caused by the bullwhip effect.Using a push system, which is a production system where goods are produced based on forecasted demand rather than actual customer orders4, may increase the risk of overproduction or underproduction, as well as create more inventory and waste in the supply chain.Increasing inventory, which is the stock of goods or materials held by a company to meet customer demand5, may increase the inventory carrying costs and risks, as well as tie up cash flow and working capital.