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As a part of Strategic Marketing, we played the acclaimed “Beer Game”which demonstrates the Bull-whip effect on supply chain. A simple, charming exercise that underscored the importance of information flow in supply chain management.
What is Bull-whip effect? Typically refers to the increasing levels of inventory or back-logs that surface up and down the supply chain from consumer to factory, both of which would naturally increase costs. The aim of any organization would be to keep the delta between forecasted-actual demand as small as possible through faster,accurate information flow through the system.
What was fun was the tension that built up through the chain of Retailer–>Wholesale–>Distributor–>Factory. The demand had fluctuated only twice and very slightly (by 2 points) through the exercise, but the anticipated demand roughly doubled at each step (From 1–>2–>4–>8 ) with the “let’s save for the impending rainy day” attitude. Now you know why it’s called the Bull-whip! With relatively stable demand, the huge inventory at the factory side implied no work for factory employees for days on end. This would’ve resulted in labor issues, strikes etc. Amazing!
Was just thinking about Dalal Street’s Bulls n Bears. The state of mind, that drives up stock prices is the same -one of anticipation- price/demand upward movement. Though this one’s by greed and the other by fear. And moolah is ploughed by playing on these two emotions. Hah!
