Page 652 - Introduction to Business

626 PART 6 Managing Business Operations, Management Information Systems, and the Digital Enterprise

Retailer Customers

Supplier Distributor
Retailer Customers

Supplier Manufacturer

Retailer Customers
Supplier Distributor

Retailer Customers

EXHIBIT 18.2

A Simple Supply Chain

If integration of the various business functions within a firm is the key concept
behind ERP systems, then integration of the various firms in a supply chain is the
fundamental notion behind supply chain management. A well-known classical
example of the lack of information integration in a supply chain is the so-called
bullwhip effect. When examining the demand for Pampers disposable diapers,
Procter & Gamble executives noticed that even though retail sales of the product
were relatively uniform, the distributors’ orders placed to the manufacturer fluctu-
ated much more than retail sales. In turn, the manufacturer’s orders to suppliers
9
fluctuated even more. This increase in variability from lower to higher in the sup-
bullwhip effect The property of supply ply chain is what is called the bullwhip effect. A graphical representation of the
chains where demand increases in bullwhip effect is shown in Exhibit 18.3.
variability as it travels up in the supply
chain

EXHIBIT 18.3
The Bullwhip Effect
Demand at retailer Demand at distributor

Time Time

Demand at manufacturer Demand at supplier

Time Time

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