Wrong solution to supply chain crunch
At the same time, many traditional bullwhip mitigation strategies were rendered ineffective due to changes in the global workforce, shortages in transportation capacity and modified customer behavior.
In recent decades firms have made significant investments in technology to counter the bullwhip, mostly to improve information sharing and transparency with software, cloud services and other collaborative efforts. Other measures include keeping prices stable and rationing orders.
Various case studies have illustrated their success in increasing operational efficiency. However, even before the pandemic it was clear that these measures were only partly, if at all, successful in suppressing the bullwhip effect. We studied 15,000 firms between 1976-2009 and observed no significant decrease in the bullwhip over time.
Anecdotally, one common denominator of the firms that handled the bullwhip well was that they already had supply chain management at the top of their corporate agenda. In many cases, the most successful firms had given this issue attention at the board-level.
Quick-response manufacturing
One strong contributor to the bullwhip effect is long lead times. Zara, owned by Spanish fashion group Inditex, has reinvented its supply chain so as to become more agile. This strategy depends on quick-response manufacturing: Zara uses contract manufacturers in the La Coruña region in north-west Spain, close to its headquarters. The proximity to design centers and the European market dramatically shortens distribution times. This has helped the company to handle the supply chain crisis well compared to competitors with longer lead times.
Another success factor that we have identified in firms that have suppressed the bullwhip is the ability to reduce product complexity and product variety during the pandemic disruption. A large consumer goods manufacturer, for instance, reduced their product portfolio and concentrated on strong sellers, which made it easier to plan and predict demand. So there was less of the panic ordering for phantom demand that has overwhelmed suppliers across the globe.
Similarly, numerous car manufacturers, such as BMW, General Motors and Mercedes-Benz, cut-down on high-end features when the supply of computer chips became constrained last year. This not only helped to avoid supply chain inefficiencies upstream, it made it possible for these companies to maintain production and delivery schedules, to an extent, despite the turmoil in supply chains.