8 May 2023

6 Ways to Reduce the Bullwhip Effect in Your Supply Chain

8 May 2023

One of the major challenges for logistics managers in various market sectors is keeping the entire workflow of their team aligned with effective inventory control. In other words, a good strategy is needed to ensure that the entire supply chain is aligned and perfectly organized, avoiding as much as possible any type of failure in communication, predictability, and information related to consumer demand and supply, which directly impacts the entire process within the warehouse.

When errors occur in balancing supply and demand, the consequences are numerous, affecting both the company’s profitability and consumer satisfaction. If demand has increased and there have been no adjustments in production or in the request for items from suppliers, there is a risk of stock depletion. On the other hand, if there is a drop in demand and the stock supply remains the same, there is a high probability of excess inventory, causing storage costs and even increasing the possibility of losses.

In practice, this can happen as follows: imagine that an e-commerce store X receives many orders for product Y, influenced by an organic marketing campaign on social networks. However, the people in charge of supplying the products did not pay attention to demand fluctuations and kept the stock request the same as the standard. The result of this scenario is the loss of sales and the opportunity for growth and profitability for the company. And worse still: there is a drop in reputation, as the customer does not meet their needs.

Now let’s imagine the opposite situation: the cosmetics company A has a clearance sale on product B for a certain period. Even after the promotion ends, the managers continued to purchase the item in larger quantities, due to information gaps. This meant that the merchandise remained in stock much longer. In this second scenario, we have an inventory greater than the number of sales, which can generate logistical problems and high maintenance costs.

In both cases, whether due to a lack of products or excess inventory, the occurrence of a discrepancy between products and sales is known as the bullwhip effect, an event capable of disrupting the supply chain workflow, causing instability in processes and severe losses for companies.

In this article, we will better understand the consequences of the bullwhip effect and how to avoid this phenomenon in your warehouse. Are we ready?

Bullwhip Effect and its consequences

The bullwhip effect, as we have seen previously, occurs when there is a discrepancy between the quantity of items produced and/or requested from suppliers and the volume of sales made to final consumers, that is, when there is no correct leveling between supply and demand.

In general, this happens due to information shortages or errors in predicting customer purchasing behavior, triggering a series of consequences that affect logistics operations, company performance, and profitability, such as:

  • Increased inventory cost
  • Increased transportation costs
  • Fluctuation in predictability
  • Dissatisfaction of partners and customers

How to reduce the bullwhip effect in the supply chain

Now that you, the manager, understand more about the bullwhip effect and its consequences, it’s time to discover how to reduce and mitigate the results of management with low predictability and communication problems involving the entire operational flow of your logistics. By applying these 6 tips to your routine, you can improve performance and enhance your working methodology. Take a look:

  1. Align strategies
  2. Map the workflow
  3. Reduce manual processes
  4. Have trusted suppliers
  5. Conduct analyses
  6. Invest in a Warehouse Management System (WMS)

Here at DEAGOR, you have a customized WMS system that helps countless companies leverage their results through technology. Our system, WMS DEAGOR, coordinates the tasks of your employees, allows access to all operational information in real-time, offering a series of panels and notifications, which facilitate the identification of failures, in addition to assisting in making the right decision for the future of your business.

In practice, the WMS system enables more dynamic, participative, and informative management, fostering opportunities for business growth, achieving goals, market differentiation, and greater competitiveness.

Avoiding the bullwhip effect is simple: the great challenge is to promote good management through visibility, greater integration with your team, direct and clear communication, promotion of strategies that minimize inventory risks, and investments in technologies and suppliers that improve and facilitate your work. Start by applying the tips presented in this text and remember: to achieve logistics excellence, improvements must be applied continuously!


6 Ways to Reduce the Bullwhip Effect in Your Supply Chain Deagor WMS per ecommerce può aiutarti!


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