The Bullwhip Effect

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Essay The Bullwhip Effect From my modest point of view, supply chain management could be considered as an area of management, which tackles generally a process of communication and collaboration between a company and its suppliers and clients. Therefore, such phenomenon as the bullwhip effect plays an extremely significant role in understanding the supply chain communication streams. The bullwhip effect refers to the phenomenon where orders to the supplier tend to have larger variance than sales to buyer, and the distortion propagates upstream in an amplified form. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. Importance of communicational links between different stages of supply chain can be illustrated by the real-life case of Barilla SpA, an Italian pasta manufacturer, which history started from the foundation of small shop in Parma in 1875. Over time, Barilla evolved into one of the largest vertically integrated Italian corporations with flour mills, pasta plants and bakery-product factories. During the 1980s, the average annual growth rate of the company was over 21%, what was a logical consequence of geographical expansion and horizontal integration. In 1990, Barilla was the largest pasta manufacturer in the world, making 35% of all pasta sold in Italy and 22% of all pasta sold in Europe. In addition, Barilla held a 29% share of the Italian bakery-products market. Barilla divided its product line into “dry” (dry pasta, cookies, biscuits, flour, bread sticks, dry toasts) and “fresh” (fresh pasta and fresh bread) product categories, representing 75% and 25% of sales, respectively. Most of these products were shipped from the plants to one or
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