Operations management - Supply chain management & the bullwhip effect

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Question 1:

a. If we aim to increase inventory velocity we must produce and push work-in-process faster to the next operation what happens is that the volume of the work-in-progress decreases. Work in progress is a part of the inventory and the decrease in the work in progress leads to a fall in the volume of the total inventory this increases the inventory velocity.

b. If we install an expensive machine that requires very large production batches but is fast, the intensity of the bullwhip effect will increase. This is because of long lead times of the entire batch, the use of forecasting for estimating the demand for the products, price fluctuation of the inputs, and volume and transportation discounts that may be availed by the company because of the large batch size.

c. If we consolidate inventories from two affected warehouses into one warehouse, keeping the same amount of inventory, the service level will decrease because of the bullwhip effect. This is because single warehouse will lead to longer lead times, make it necessary to forecast demand for the various supplies, take advantage of price fluctuation and make timely purchases and take advantage of volume and transportation discounts.

Question 2:

a. The level of inventory of printers after the plant will go down. This is because some printers are produced every day and some of the production will exactly meet the demand and will be shipped instantly. There will be a level of inventory, as all production may not match all the orders but the level of inventory will become lower than before.

b. The level of work in process will also fall; some of the intermediary parts produced will be used instantly as some printers of every type are being produced every day.

c. The intensity of the bull whip effect in the entire chain will fall because lead times will become shorter because of the daily production of every model, there will be less need to forecast demand, the supply of raw materials will be more closely related to the demand and not attempt to make use of gains from price fluctuation, there will be less attempts to take advantage of volume and transportation discounts.

THE GENERIC DESCRIPTION OF WHAT IS THE BULL WHIP EFFECT

Many manufacturers face product demand that changes significantly on a weekly basis, forcing them to hold excessive inventory in order to maintain acceptable customer service levels. In addition, large demand fluctuations make it difficult to manage equipment, transportation, and human resources. Manufacturers often respond to variable demand by implementing progressively more sophisticated forecasting tools. Unfortunately, no forecasting tool is capable of predicting demand fluctuations.

Amazingly, when examining retail demand figures, manufacturers commonly discover that retail demand exhibits relatively low variability. The term bullwhip effect refers to the magnification of demand variability as orders move up the supply chain. Procter and Gamble ...