It’s a common, maddening story: a retailer anticipating higher demand for a product increases its order to a supplier. The supplier is thrilled to win the additional business, but their raw material vendor ends up missing a shipment deadline by a week, delaying production. While this one-week delay in production might seem minuscule, it forces the retailer to book with a different freight partner at a higher rate – lowering the margin on the product and delaying shipment by another three weeks.
At each step of the supply chain, delays and costs continually compound due to one slight glitch at the beginning of the product lifecycle.
This is one example of the bullwhip effect in supply chains. The metaphor is apt: someone holding a bullwhip needs only a slight flick of the wrist to generate an exaggerated flair and a loud snap.
The small gesture of the person cracking a bullwhip is minimal compared to the ultimate impact of the whip, and the one-week delay by the raw material vendor is minor compared to the sunken margins and continual, additional delays retailers will see upstream.
Any disruption in the supply chain has greater impacts the further you move upstream. A slight delay resulting from a compliance issue at a factory slows each step of the supply chain that follows, resulting in weeks or months of delay in getting products on store shelves.
Now factor in weather changes or changing trade agreements that can introduce costs and disrupt logistics, port congestion, distribution center capacity, and a myriad of other potential issues. There are a lot of things that can negatively affect revenue, inventory, and time to market down the line.
So, what can retailers do to limit the bullwhip effect? Is it a natural consequence of having so many moving parts involved in design, sourcing, production, and distribution?
It doesn’t have to be. But to mitigate the bullwhip effect, retailers need to fundamentally change their product and supply chain operations. Sharing accurate information and communicating effectively and early with all partners needs to be a priority at every step of the supply chain.
Before choosing a supplier, retailers need a streamlined way to get up-to-date information on vendor compliance, factory capacity, and production scheduling. Having this information upfront ensures issues with compliance and capacity will not result in delays and create a bullwhip effect that leaves retailers and customers waiting on the product.
Retailers also need the capability to work closely with partners on product development and design to streamline the sampling process, ensure products are attuned to consumer tastes, and track deadlines. Any delays during the design and sampling phase can start the bullwhip effect early, so communication and collaboration are especially important during this time.
A digital supply chain platform that connects all partners at each node of the chain enables the visibility and communication retailers need to ensure there are no issues upstream.
Once retailers know a factory is certified and has the capacity to fulfill orders, it’s time to submit a purchase order (PO). Traditionally, retailers have had to submit complete POs weeks or months out to secure the production capacity they need.
However, long lead times amplify the bullwhip effect and reduce the likelihood that production decisions will align with evolving channel and market demand.
An agile approach to purchasing reduces lead times and allows retailers to make key, detailed decisions about product sizes, colors, tagging, and packaging later in the process based on what market the product will go to and early sales data.
With agile purchasing, retailers only need to give suppliers an early view of general demand when they initially cut the PO. With this early visibility, suppliers can ensure they have the materials, production, and financing necessary to fulfill an order.
Retailers then have the opportunity to collect real-time sales data to identify the sizes, colors, and sell channels seeing the greatest consumer demand. Postponing decisions about product details gives retailers more accurate insight into what consumers really want closer to the time products actually arrive in-store.
This extra time is precious – trends and consumer tastes are fickle and change quickly, especially in the apparel industry. This postponement also eliminates the need to make costly PO changes based on demand.
This capability gives retailers market flexibility – if a product is selling exceptionally well in a specific region or country, retailers have the opportunity and time to allocate more product to the geographies showing high demand. They can also shift the sizes they’re manufacturing accordingly if, for example, demand is rising in Japan or China where smaller sizes are more popular.
This way, retailers can get suppliers working on their order early on and submit requests on detail activities later rather than submitting a detailed PO all at once and reworking detail activities at the last minute.
Early PO visibility and a connected, communicative supply chain network are the antidote to the bullwhip effect. When retailers share accurate information across all nodes of the supply chain, their partners can buffer for any slight disruptions to mitigate the effects of these issues upstream.
Bamboo Rose offers agile purchasing as an integrated solution within the Bamboo Rose platform for retailers interested in limiting the bullwhip effect on their supply chain.
The connected platform enables flexible, seamless data sharing across all supply chain partners to help retailers reduce order changes by 50% and remove 3 to 6 weeks from the order cycle.
Are you ready for a more flexible, agile supply chain? Try the Bamboo Rose platform today.