The Bullwhip Effect in Apple’s Company

1. Definition

The bullwhip effect can be described as a series of events that leads to supplier demand variability up the supply chain. Trigger events include the frequency of orders, varying quantities ordered, or the combination of both events by downstream partners in a supply chain.

"Bullwhip" effect occurs because demand information passed along the supply chain up the process of being constantly misinterpreted. Products distribution business to become the retailer orders the victim of exaggerated; turn it further exaggerated orders to suppliers.

The bullwhip effect has been perceived as an unavoidable effect of demand variation. Only recently have companies begun to tackle the ripple associated with variances in demand. The key to stemming the effect is realizing who is signaling the change in demand. Is it the manufacturer, distributor, the retailer, or the customer? Knowing where the demand shifts are originating is vital to attacking this problem.

2. "Bullwhip" effect causes

Lee et al. (1997) first analyzed the causes of the bullwhip effect are:

• Demand forecast updating
  Demand forecast usually are based on the orders of the preceding echelon and not on the actual customer demand
• Order batching
  Orders are usually aggregated to batches to save cost.
• Price fluctuations
  Promotions and other effects can lead to price fluctuations of the product. When the price is perceived to be lower, orders go up and vis-versa.
• Rationing and shortage gaming
  For some products (eg. new iPhone) which may be short in supply, game theory suggests that it might be rational to order more than actually needed, since the number of delivered products usually is a percentage of the number of products ordered.

3. How to Manage the Bullwhip Effect, They are:

1. Reduce lead time of information (orders, demand and capacity forecasts, point-of-sale data for the entire supply chain).
2. Reduce lead time of material.
3. Reduce variability with effective use of the Heijunka and one-piece flow.
4. Cooperation and good relationships with your supply chain partners.

4. The following issues arise when measuring the bullwhip effect.

• Aggregation
  To measure the bullwhip effect correctly one has to be aware of different data aggregation levels one could choose; one can aggregate demand by echelon, outlet, product, time. Each aggregation will give different insights and different levels of the bullwhip effect.
• Incomplete data
  There may be a conceptual imbalance between incoming demand and outgoing demand, furthermore the information on those values may be incomplete.
• Filtering for causes
  To analyze and act on the bullwhip effect, one has to understand the causes of the demand variations at hand.

5. Solution in Apple’s Company ( solve the "bullwhip effect" approach)

from the supplier’s perspective, the “bullwhip effect” is in the supply chain vendors at all levels (total distributors, wholesalers, retailers) to transfer the risks and the result of speculation, it will lead to the production of disorder, inventory increases, the cost increase, access blocking, market turmoil, the risk increases, so will be able to properly resolve the risk-averse, reduction efficiency. Enterprises from the following six aspects of a comprehensive way.

1, order management at different levels

From the supplier point of view, not all vendors (wholesalers, retailers) the status and role are the same. Therefore, suppliers should be based on certain criteria will be classified vendors for different vendors into different levels, different levels of their order management, such as the general practice to meet the seller in order management, and for the important orders to vendors to fully manage, especially for key vendors to achieve perfect order management, so that you can live through the control key vendors and key vendors to reduce the mutation probability; in short supply, it can give priority to ensure that the critical vendor orders; suppliers can also be hierarchical management strategy, at the right time to eliminate unqualified vendors, to maintain the unity of vendors and channel management, normative.

2, to enhance a storage management, and a reasonable sharing of responsibilities

avoid man-made inventory supply chain dealing with the data one way is to make upstream firm can obtain the real needs of its downstream business information, so that upstream and downstream enterprises can the same raw data to develop supply and demand plans. For example, Apple in co-operation agreement expressly ask the distributor to the retailer central warehouse where the product of feedback to go back out of libraries, though these data do not point of sale data from retailers, less comprehensive, but it is better than the sent the goods after the goods have lost the information much better. the use of electronic data interchange (EDI) and other modern information technology to track the sales is also a timely solve the “bullwhip effect” of the important ways.

3, shorten lead times, the implementation of outsourcing services

Generally speaking, the shorter order lead time to set the amount of the more accurate, thus encouraging the shorter ordering period is cracked, “bullwhip effect” in a good way.

4, to avoid shortage of the game under the act

when faced with shortage of supply, suppliers can according to customer sales records to carry out the previous limit of supply, rather than on the quantity ordered, so that vendors can be prevented in order to obtain more to exaggerate the amount of supply order. Apple has long been done.

5, reference to historical data, the appropriate reduction amendment, in batches sent

providers based on historical data and current environmental analysis, appropriate reduction of order, at the same time keep up with demand, suppliers can use the joint inventory and joint modes of transport more than batch sending, so at no additional cost under the premise, it can guarantee to meet the orders.

6, ahead of reimbursement period

reimbursement period ahead, according to the proportion of reimbu.

Apple that have mastered Supply Chain Management are able to used the various effects for their advantage. Companies that produce different variations of one product can control the behaviour of the customer by the quantities of each variation that is being supplied. For example, by producing a limited amount of the cheapest iPod, Apple-Customers are required to purchase the more expensive version. This example presents that companies have various possibilities to use the Supply Chain not only for improving the product-flow but also for improving the products impact on the market.

Apple's supply chain still on top of the pile. Not only does Apple's stock shine, so does its supply chain.The Cupertino, California-based consumer electronics company that produces the ubiquitous Macintosh computers, iPhones, iPads, and iPods ranked number one on AMR Research's 2010 list of the top 25 supply chains. This was the third consecutive year Apple earned that designation. AMR said that Apple maintains its dominance because it consistently brings operational and innovation excellence to competitive markets.

In its sixth annual report on supply chain leaders, the Boston, Massachusetts-based research firm (now part of the Gartner Group) ranked companies for excellence based on execution metrics such as return on assets, revenue growth, and inventory turns. The research firm maintains that companies on its list of supply chain leaders have seen a positive impact on their stock performance.

Procter & Gamble, which came in second, is the only company that has been in the top 10 every year that AMR has conducted its assessment.

Here are the research firm's picks for the top 10:

1. Apple
2. Procter & Gamble
3. Cisco Systems
4. Wal-Mart Stores
5. Dell
6. PepsiCo
7. Samsung
8. IBM
9. Research In Motion
10. Amazon.com

Apple also certainly enhanced its “cool” factor with the introduction of iPad yesterday. While the iPad is an important advance in consumer technology development, the bullwhip effect is a key growth spur for the entire economy. Caterpillar’s actions imply the growth burst could be nearer than many expect.