Page 541 - Using MIS

Q3 How Do Inter-enterprise IS Facilitate Global Supply Chain Management? 509

Sales
Database

Raw Processing
Supply Materials Center Store
Inventory Inventory Inventory Inventory
Supplies & Finished Goods Goods for Sale
Raw Materials

Orders Orders Walmart Orders Walmart
Suppliers Manufacturers Processing
Centers Stores
Figure ID-6
Example Walmart Supply Chain (Worldwide) (Worldwide) (Worldwide) (Worldwide)

important. Consider, for example, inventory management at each of the companies in Figure
ID-6. How do those companies decide when and how much to purchase? How does the new
Walmart processing center in Mexico City determine how many pairs of jeans, ice chests, or
bottles of vitamin C to order? How large should the orders be? How frequently should or-
ders be placed? How are those orders tracked? What happens when a shipment disappears?
Information is a major factor in making each of those decisions, along with dozens of others.
To provide insight into the importance of information, consider just one example, the bull-
whip effect.
How Can Information Relieve the Bullwhip Effect?

The bullwhip effect is a phenomenon in which the variability in the size and timing of orders
increases at each stage up the supply chain, from customer to supplier. Figure ID-7 depicts the
situation. In a famous study, the bullwhip effect was observed in Procter & Gamble’s supply
chain for diapers. 6
Except for random variation, diaper demand is constant. Diaper use is not seasonal; the
requirement for diapers does not change with fashion or anything else. The number of babies
determines diaper demand, and that number is constant or possibly slowly changing.
Retailers do not order from the distributor with the sale of every diaper package. The re-
tailer waits until the diaper inventory falls below a certain level, called the reorder quantity.
Then the retailer orders a supply of diapers, perhaps ordering a few more than it expects to sell
to ensure that it does not have an outage.
The distributor receives the retailer’s order and follows the same process. It waits until its
supply falls below the reorder quantity, and then it reorders from the manufacturer, with per-
haps an increased amount to prevent outages. The manufacturer, in turn, uses a similar process
with the raw-materials suppliers.

6 Hau L. Lee, V. Padmanabhan, and S. Whang, “The Bullwhip Effect in Supply Chains,” Sloan Management Review,
Spring 1997, pp. 93–102.