When distorted information is transmitted up the supply chain, at some point the cost from those fluctuations in production/ordering can outweigh the cost of holding inventory, resulting in a major revenue drain for businesses. The bullwhip effect is challenging to discover, and even more complex to mitigate. New IT technologies such as Cloud computing and the Blockchain have recently emerged as strong contenders for this task.
Bullwhip Effect with Cloud Computing
Cloud computing helps in connecting and digitizing more links within your supply chain – supplied with real-time data, better connectivity, and improved data sharing tools for all supply chain participants. It is the first necessary step to improve supply chain visibility and velocity. Implementing a cloud-based platform can help businesses better coordinate all the chain’s participants and gather more accurate data from them for demand forecasting. Levels for Cloud Computing are-
- Level 1: Transaction Integration - This step involves automating common business processes and transactions such as Purchase orders, work orders, sales orders, Invoices, Credit and debit notes, Payments using cloud platforms, and tools.
- Level 2: Supply chain management information sharing - Digitized supply chain gives all entities access to better information for the decision about Production, forecasts, BOMs, prices, orders, inventory, etc.
- Level 3: Strategic collaboration - Once the system is up and running smoothly all the participants can make collaborative decisions on: Enhancing strategic supply chain relationships and profitability, Upgrading forecast accuracy, Levelling up sales and operations planning, Resolving critical supply chain events at a faster pace, Creating unified pricing plans, Accelerating and managing demand plans, direct material procurement, Improving production capacities and working out an effective fulfillment network expansion.
Bullwhip Effect with Blockchain
Blockchain can be used to tackle information asymmetry on a wider scale. As a secure digital ledger, the blockchain component can act as a single, unified source of data and enable real-time access to all the records, as well as seamless and automated updates. When insights such as Inventory levels, work in progress levels, order data, demand data are available, all entities can base their forecasts on the same data, thus reducing bullwhip effect. Ultimately, blockchain technology has several major advantages when it comes to improving supply chain management:
- It enables faster transactions.
- It provides unified access to multiple sources of information to different decision makers.
- It enhances collaboration among the supply chain participants through tokenization.
- Finally, blockchain allows selective information aggregation.
All these features together position blockchain as a powerful solution to reducing the bullwhip effect, enabling higher visibility and greater collaboration in supply chain management.