The bullwhip effect can lead to excessive inventory in a company, which translates to the increase in the costs that are used in the management of inventory. The increase in the costs of inventory is because of the producer needing to fulfill the needs of the customer in the supply chain. The increase in the costs of inventory, owing to the bullwhip effect, leads to low utilization of the distribution channels that connect the producers to their consumers. In as much as a business premise could have the safety stocks, there is the risk of stock-outs caused by the bullwhip effect whose result is the reduction in the quality of customer service and the increase in the rate at which the organization is losing sales in the market. Lack of proper communication between the supply chain links is one of the causes of the bullwhip effect that leads to excessive inventory.
The free return policies cause an increase in the bullwhip effect in a business, which in turn leads to an increase in the costs used in the management of the inventory. In the free return policies, a business may be faced with a scenario where customers place orders for items before they are available in a company and then cancel the orders once the product they had initially asked for is in the store. If adequate accounting and communication are not done, the retailers will keep the records that indicate a falsified demand for the product. The exaggeration by the retailers may also dishearten them as they account for their sales in a given period. That would cost them more than just money in the business operations. In reality, that would lead to the holding of excess stock by the retailers, which would significantly increase the costs that they are supposed to be used in the management of inventory.
Delegate your assignment to our experts and they will do the rest.
Impact of the Bullwhip Effect on Manufacturing Costs
The bullwhip effect usually affects the distribution channel starting from the producer via the various intermediaries such as wholesalers and retailers, to the consumers. Therefore, the bullwhip effect flows with the supply chain management practices of an organization. The manufacturing costs are closely linked with the inventory costs in that the increase in the number of goods manufactured has an incremental effect on the number of products that are in the stock. That is to say that the increase in the costs of manufacturing products in a company usually increases the cost of stocking them up in the company. The forecasting of the demand of products is another area that the supply chain management is involved in at a company. The increase in the intensity of the bullwhip effect leads to an increase in the instability of the production forecast, which may lead to the overproduction of goods or underproduction of the same, both of which are lethal to the development of a company.
The supply chain managers may make inappropriate and inaccurate decisions due to the influence of the bullwhip effect. Such decisions may adversely affect the other managers in the supply chain. The lack of proper decision making, In this case, may aggravate the bullwhip effect and increase the costs of manufacturing since the decisions may inflate the costs of production and lead to the loss of substantial amounts of money by the company. The bullwhip effect leads to the reduction of the profits that are gained from the sale of the manufactured goods. That is because of the increase in the cost of production of the goods which when sold at a Constant price may lead to the constriction of the profits realized as after sales. The miscommunication of orders in the supply chain may inflate the orders, which may exponentially raise the costs of manufacture of the individual items that are placed on order.
Initiative 1- Use Point-of-Sale (POS) Data
The first impediment for the use of POS data is the lack of the technical expertise in the operation of the POS machines. The users have to have some kind of education to adjust the prices of the machines and ensure that they reflect the accurate cost rate for the company. The other barriers to the implementation of the POS are as follows. Firstly, the pops machines are expensive to install for a small and medium-sized enterprise or an upcoming venture. Secondly, the POS machines are interconnected with the other machines, and therefore an error in the other machines could lead to a grave mistake in the POS pricing and cost Calculation that would cost the company much money to fix. Thirdly, the POS machines have power problems that may render them useless in the event of a power blackout. Lastly, the POS machines are unable to satisfy the needs of every customer due to their rigidity in the price adjustment.
Initiative 2- Delivery Appointments
The first challenge facing the delivery appointments is the Possibility of the mishaps in the delivery caused by the delay in the shipping methods. Time is an essential resource to both the producers and the consumers. If the product delays getting to the market, the consumer may be faced with the untimely recording of the sales which may low business operations and affect the profits. The other challenge facing delivery appointments is that there are risks in the trade war across the globe, which may damage goods being shipped. The other impediment is the trucking shortage where the delivery appointments have to be delayed in search of transport option. The other challenge is the increasing delivery rates due to the increase in the oil price in the world. The last impediment is the capacity cuts whereby only a few goods can be transported at a go. That reduces the intensity of the business operations on the side of the producer.
