That’s a really interesting effect, thanks for linking. I have two questions:
1) I’m confused about what the mechanism that produces the Bullwhip effect is.
One video suggested the following: as demand rapidly increases during time_step_1, suppliers aren’t able to fully adapt and meet it, which causes an even larger shortage during time_step_2 and hence even larger demand; and somehow these effects compound down the supply chain.
Another mechanism is just that the demand signal is noisy, and so its variance will increase as one moves down the supply chain. But I’m confused why this causes everything to blow up (as opposed to, say, different sub-suppliers making errors in different directions, which sorta cancel out, even though the larger variance at the end-supplier causes some volatility. That is, it’s just as likely that they underestimate demand as it is that they overestimate it.)
2)
changing viewpoints and using systems thinking
Exactly what does this imply that I, as a middle-manager somewhere in the supply chain, observing a noisy demand signal, should do? How does this concretely change my order decision from my supplier, in a way which improves things?
1) It’s neither noise nor rapid increase—it’s delayed feedback. Control theorists in engineering have this as a really clear, basic result, that delayed feedback is really really bad in various ways. There are entire books on how to do it well—https://books.google.ch/books?id=Cy_wCAAAQBAJ&pg=PR9&lpg=PR9 - but doing it without using these more complex techniques is bad.
2) You either hire a control theorist, or (more practically) you avoid the current feedback mechanism, and instead get people on the phone to talk about and understand what everyone needs, as opposed to relying on their delayed feedback in the form of numeric orders.
That’s a really interesting effect, thanks for linking. I have two questions:
1) I’m confused about what the mechanism that produces the Bullwhip effect is.
One video suggested the following: as demand rapidly increases during time_step_1, suppliers aren’t able to fully adapt and meet it, which causes an even larger shortage during time_step_2 and hence even larger demand; and somehow these effects compound down the supply chain.
Another mechanism is just that the demand signal is noisy, and so its variance will increase as one moves down the supply chain. But I’m confused why this causes everything to blow up (as opposed to, say, different sub-suppliers making errors in different directions, which sorta cancel out, even though the larger variance at the end-supplier causes some volatility. That is, it’s just as likely that they underestimate demand as it is that they overestimate it.)
2)
Exactly what does this imply that I, as a middle-manager somewhere in the supply chain, observing a noisy demand signal, should do? How does this concretely change my order decision from my supplier, in a way which improves things?
1) It’s neither noise nor rapid increase—it’s delayed feedback. Control theorists in engineering have this as a really clear, basic result, that delayed feedback is really really bad in various ways. There are entire books on how to do it well—https://books.google.ch/books?id=Cy_wCAAAQBAJ&pg=PR9&lpg=PR9 - but doing it without using these more complex techniques is bad.
2) You either hire a control theorist, or (more practically) you avoid the current feedback mechanism, and instead get people on the phone to talk about and understand what everyone needs, as opposed to relying on their delayed feedback in the form of numeric orders.