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LACK OF SUPPLY CHAIN COORDINATION AND THE BULLWHIP EFFECT (page 250)
Supply chain coordination improves if all stages of the chain take actions that are aligned and increase total supply chain surplus.Barilla, an Italian manufacturer of pasta, observed that weekly orders placed by a local distribution center fluctuated by up to a factor of 70 in the course of the year, whereas weekly sales at the distribution center (representing orders placed by supermarkets) fluctuated by a factor of less than three.3 Barilla was thus facing demand that was much more variable than customer demand.This made it difficult for HP to fill orders on time and increased the cost of doing so. Studies of the apparel and grocery industry have shown a similar phenomenon: The fluctuation in orders increases as we move upstream in the supply chain from retail to manufacturing.HP also found that the fluctuation in orders increased significantly as they moved from the resellers up the supply chain to the printer division to the integrated circuit division.2 Once again, while product demand showed some variability, orders placed with the integrated circuit division were much more variable.Page1|3

Homework of reading in Supply Chain Management
Procter & Gamble (P&G) has observed the bullwhip effect in the supply chain for Pampers diapers.1 The company found that raw material orders from P&G to its suppliers fluctuated significantly over time.The fundamental challenge today is for supply chains to achieve coordination in spite of multiple ownership and increased product variety.One outcome of the lack of supply chain coordination is the bullwhip effect, in which fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers, as shown in Figure 10-1.A lack of coordination occurs either because different stages of the supply chain have objectives that conflict or because information moving between stages is delayed and distorted.The increased variety makes it difficult for Ford
to coordinate information exchange with thousands of suppliers and dealers.As a result, each stage tries to maximize its own profits, resulting in actions that often diminish total supply chain profits (see Chapters 11, 13, and 15).For example, Ford Motor Company has thousands of suppliers from Goodyear to Motorola, and each of these suppliers has many suppliers in turn.This distortion is exaggerated by the fact that supply chains today produce a large variety of products.This led to increased inventories, poorer product availability, and a drop in profits.Today, supply chains consist of stages with different owners.Farther down the chain, when sales at retail stores were studied, the fluctuations, while present, were small.Supply chain coordination requires each stage of the supply chain to share information and take into account the impact its actions have on other stages.Different stages of a supply chain may have conflicting objectives if each stage has a different owner.Ford produces different models with several options for each model.The bullwhip effect distorts demand information within the supply chain, with each stage having a different estimate of what demand looks like.Although consumption of the end product was stable, orders for raw material were highly variable, increasing costs and making it difficult to match supply and demand.Information is distorted as it moves across the supply chain because complete information is not shared between stages.It is reasonable to assume that the consumers of diapers (babies) at the last stage of the supply chain used them at a steady rate.