Mitigating the Bullwhip Effect

¶ … absence of it, help to create the bull-whip effect? What feedback would you like to have, specifically, as you determine your weekly orders for Kentucky Swamp Brew? How would get such information? When would you like to have it?

"As beer consumers develop a taste for more refined small-batch brews, the craft beer industry is steadily growing, and so is the need for beer supply chain management solutions" (Skrbek 2014) The so-called 'bullwhip' effect is when variability in a supply chain is magnified the farther one moves up the supply chain. "Demand variability increases as one moves up the supply chain away from the retail customer, and small changes in consumer demand can result in large variations in orders placed upstream" (The Bullwhip Effect, 2014, Quick MBA). Factors which exacerbate the effect include "overreactions" to backlogged orders (which results in ordering needless additional inventory); failing to order to reduce backlogged inventory; overly large orders to reduce overhead costs; ordering more than needed during a shortage; misguided forecasts; liberal return policies which increase inventory; and a general lack of communication up and down the supply chain (The Bullwhip Effect, 2014, Quick MBA). Thus both a lack of information (i.e., a lack of information about consumer demand and current inventory levels) and unhelpful feedback (in the form of knowledge of a potentially looming shortages or temporarily low prices) can create the bullwhip effect.

To determine orders for a brewing company, various factors to keep in mind would be current customer demand; customer demand from past seasons (to indicate when shifts in buying habits may occur based upon seasons and holidays); the present inventory; and also current trends or changes in buying habits which could affect consumption patterns. "Lack of demand visibility can be addressed by providing access to point of sale (POS) data. Single control of replenishment or Vendor Managed Inventory (VMI) can overcome exaggerated demand forecasts. Long lead times should be reduced where economically advantageous" (The Bullwhip Effect, 2014, Quick MBA). The external environment must be continually monitored and there must be a constant 'loop' of feedback between the distributors and the retailers to ensure that the information is current. Orders can thus be tailored to reflect his information. Even if some additional costs are incurred by small batch shipping, this may be offset by the advantage of not having a perishable item build up in the warehouse or in the retailer's storage space. "Craft breweries also present a few unique production scheduling challenges like spoilage concerns, avoiding cross contamination, lengthy cleanouts, limited intermediate storage and constrained material flow paths because of conveyance equipment. In addition, many of our favorite brews are seasonal and require product line changes throughout the year with short windows of opportunity" (Skrbek 2014). Retailers must be aware of these dynamics and realize that ordering from a craft brewery may be different than ordering from a large manufacturer.