Bullwhip Effect in Retail Supply Chains

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The supply chain is an extended enterprise with different upstream and downstream companies and various service providers that need to operate closely together. These companies are directly linked by the flow of products, services, money, and information from various sources to the customer (Simchi-Levi et al., 2004).


Supply chain management (SCM) then includes all the methods, systems, people, and resources that help improve processes and organisations throughout the supply chain.
SCM involves close working together of all companies in the chain. Simchi Levi et al. (2004) classify SCM into two categories: configuration, which is related to basic infrastructure (hardware, software, transport, etc.); and coordination, related to the way the supply chain operates.
Configuration issues include decisions on choosing suppliers, outsourcing activities, and policies for purchasing, decisions on production, site location, capacity; distribution channels, retail locations, and transportation costs and issues.
Coordination issues include decisions on material flows throughout the chain, how information is exchanged, and payment systems. This shows how complex supply chain management is because it involves many functions and geographic areas. Design and execution are therefore difficult and need to be managed for the supply chain to move with efficiency.
An example is shown in Figure 1 (Gereffi, 2002) for retail apparel which links cotton and synthetic fibre manufacturers, textile mills, apparel manufacturers, and retail outlets from all the five continents.
If one link in this chain breaks, e.g., the container ship with the raw material supply of African cotton gets lost at sea, the whole supply chain can break do ...
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