POS systems that allow management to track and analyze sales are the best way to counter supply and demand issues such as the bullwhip.
Demand factors are the main contributor to fueling the bullwhip effect. These factors are related to the levels of demand from consumers, retailers and wholesalers. When consumers demand more of a certain product, the product’s retailers demand more from their wholesalers, causing an increase in demand from manufacturers as well. As the bullwhip occurs, which is typically due to unmanaged entities within supply chains misinterpreting or miscalculating actual levels of needed products, rising costs and dissatisfied customers follow. Ineffective communication, batch orders, and downturns often lead to the whip.
Retail stores can withstand the bullwhip effect by buying in bulk.
When entities within supply chains do not communicate effectively, whiplash occurs more often. This lack of communication causes a lack of coordination, resulting in retailers, wholesalers, and manufacturers having too much or too little product. Sometimes entities involved in a supply chain maintain communication, but this communication is delayed, which also leads to lack of coordination and failure to meet consumer demand levels.
Wholesale and retail stores often experience the bullwhip effect by engaging in batch orders, also known as bulk purchases. While order batching allows retail and wholesale stores to offer a product at lower prices than normal, stores sometimes exceed consumer demands. When a store meets consumer demands, it is left with excess product. This causes stores to incur additional costs that could have been avoided had they not ordered too much of the product.
One of the best ways for stores to deal with the bullwhip effect is to implement and use some type of point of sale (POS) system. This type of system allows stores to avoid anticipated inaccuracies, as well as unique control over product replenishment. POS systems allow stores to perform comprehensive and necessary analyzes of inventory and product sales. These analytics, if read correctly, can help retail and wholesale stores better meet consumer demand levels, leading to a well-maintained and stable supply chain.
Companies operating in a recession often endure the bullwhip effect to some degree. In addition to using POS systems, many of these companies have found that they can successfully adjust their inventory levels by looking at macro-level marketing trends, allowing their supply chains to become stable again. When the bullwhip effect is ignored, businesses tend to fail and it is very important that all stores know how to deal with the problem properly.