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    Operations management - Supply chain management & the bullwhip effect

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    Question 1:

    IF: THEN (all else equal, it is likely that):

    a) We aim to increase "inventory velocity" We must produce and push work-in-process faster to next operation/ wait and produce only what is pulled by next operation. EXPLAIN WHY

    b) We install an expensive machine that requires The intensity of the "bull whip" in the supply chain
    very large production batches but it is fast will increase / decease / not be affected. EXPLAIN WHY

    c) We consolidate inventories from two (nearby) "Service level" will increase / decrease/ not be affected warehouses into one warehouse (keeping the same EXPLAIN WHY
    amount of inventory)

    Question 2:

    A plant makes four different models of DeskJet printers. Up to now, it has been producing each model only once every week (for example, Model A on Mondays, Model B on Tuesdays and part of Wednesdays, Model C on Wednesdays and Thursdays, and Model D on Fridays). There is a proposal to move from weekly to daily schedule and produce some of each model every day. Total weekly production output would be the same. Changeover times and costs (from one model to another) are insignificant.

    Would this change reduce or increase:
    a) The level of inventory of printers in the supply chain after the plant? Why?
    b) The level of "work in process" inventory in the plant (i.e., number of printers being assembled)? Why?
    c) The intensity of the "bull whip" in the entire supply chain? Why?

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    Solution Preview

    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.


    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 ...

    Solution Summary

    In a 1,889 word solution, the response is thorough and pertinent. A general discussion of the bull whip effect is also provided with 4 references.