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The Bullwhip Effect and China Manufacturing

A simple definition of the Bullwhip Effect is the ripple effect of small changes on the downstream side of a supply chain that are magnified upstream all the way to the manufacturer.  A small change or fluctuation downstream will cause bigger and bigger changes as it moves upstream.

There are many contributing causes of The Bullwhip Effect.  The main cause is uncertainty and the resulting ordering of safety stock.  A retailer will forecast how much they are going to sell.  Knowing the forecast will never be 100% accurate and that their supplier will not deliver on time 100% of the time, that retailer will typically order safety stock.  The wholesaler, receiving the order from the retailer, will order a little extra so they too will have safety stock.  This pattern is perpetuated up through the supply chain to the manufacturer, who may then order more raw materials than necessary for the same reason.  Sales, promotions, unusual weather, and even quality control (or lack of it), can cause fluctuations in sales volume and can contribute to the Bullwhip Effect.

The uncertainty and safety stock is due to the amount of lead time between forecast and delivery.  If there was zero lead time, there would be no need for safety stock.  If stock could be replenished immediately, there would be no need to forecast (or guess) what quantity will be needed for further time frames.  Unfortunately, instant stock replacement is impossible.

From a China manufacturing point of view, and with China manufacturing lead-times being what they are, the best way to reduce the Bullwhip Effect is to do everything possible to shorten lead times.  This includes issuing timely purchase orders, arranging for potentially hard to find or long lead time components, or materials to be ordered ahead of time, and contracting for a quantity of products to be ready to ship or in a semi-assembled state stored and ready for final assembly.  There may be other steps that can also successfully reduce lead time, depending upon the specific product, the number of factories involved in the manufacture of that product, and the time of year.

These suggestions will potentially result in additional fees from the factory.  It would be wise to consult with an experienced company with years of experience in working directly with a wide variety of China manufactures that produce products for many industries and unique situations.  ITI Manufacturing is such a company.

At ITI, in addition to managing the complete sourcing, manufacturing, testing, inspection, and shipping of our customer’s products, we guarantee no manufacturing defects.  We also work to tailor the manufacturing environment to the needs of our customers.  Each customer, each product, and each business situation is unlike any other.  And above all, we understand emergencies happen.

ITI Manufacturing can manage the production of your product.  But if you need more than that, if you need experience beyond the product, ITI has the resources to make that need a reality.

Call us and find out what ITI Manufacturing can do for your company.

By | 2017-03-09T16:10:03+00:00 October 28th, 2016|ITI News|

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