In our previous blog, we shared a brief explanation of the bullwhip effect and how it can negatively affect inventory management. But this whipsaw reaction can also be caused by congestion. Dr. Willy Shih, the Robert and Jane Cizik professor of management practice at Harvard Business School provides this simple analogy that illustrates how congestion removes capacity from the supply chain system.
“When we encounter a traffic jam on the freeway, we easily recognize the extra time it will take us to get to our destination. It’s the same thing with the supply chain: The more vehicles in the chain, the more backed up things get, and the less stuff gets moved each day.”
On the eastbound trans-Pacific route over the past two years, for instance, container lines assigned more ships and more containers to the trade lane because of high demand from U.S. consumers. But the increase in the number of ships and containers paradoxically meant fewer ships per hour made it to the ports because of the increased congestion. Meanwhile, many of those stuck-in-traffic ships were transferred from other trade lanes, like Europe to the U.S., which meant less capacity there and higher freight rates.
Then there’s the inventory stuck on those ships. People tend to forget about this ‘pipeline inventory’ that is stuck in traffic, and go order more instead. Hello, bullwhip effect!
One effective way to avoid the bullwhip effect is to utilize Shippers Solutions’ Easy Supply Program (ESP) which monitors real-time sales and buffered data from their supplier partners. Combined with pre-determined settings the data is processed through an order-history algorithm to create precise replenishment recommendations. Using ESP is hassle-free and actually guarantees that you’ll never have to worry about running out of inventory again. We invite you to contact us if you’d like to hear more about this time-tested inventory management solution. For more information go to ssco.pro/easy-supply-program.