MGT 301 Exam 2 Solution Manual Fully Solved
Bullwhip--Define the bullwhip effect and discuss why order magnitude and variability increase for
upstream suppliers - Answers is a distribution channel phenomenon in which forecasts yield supply
chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand
as one moves further up the supply chain.
forecasts & their corresponding orders along the supply chain can become amplified and accumulate---
causing what is termed the bullwhip effect
variations in demand lead to problems in capacity planning, inventory control, & workforce &
production scheduling
ultimately, these variations result in lower levels of customer service & higher total supply chain costs
factors causing bullwhip effect - Answers Demand Signal
lead time
order batching
price discounting
rationing game
List and define the factors causing or exacerbating the bullwhip effect - Answers Demand Signal
Processing involves rational ordering decisions by buyers that over-respond to fluctuations in
downstream demand. This response is due to belief that any fluctuation is indicative of a longer-term
trend in demand. Inclusion of safety stock in orders at each tier in the supply chain contributes to
distortion of the demand signal, further exacerbating the bullwhip effect. Ultimately, the pattern results
in overshoot and collapse in ordering and inventory backlog cycles that increase with each subsequent
upstream partner.
Lead Time - Increase in variability is magnified with increasing lead time. To calculate safety stock levels
and reorder points, we multiply estimates of the average standard deviation of the daily customer
demand by the lead time. Thus, with longer lead times, a small change in the estimate of demand
variability implies a significant change in safety stock, reorder level, and thus order quantities. This
results in multiplicative rather than additive variations.
,Order batching occurs when buyers place orders based on some order cycle, such as weekly, biweekly,
or monthly, rather than placing orders more frequently when demand actually occurs. Such periodic
ordering causes spikes in demand followed by periods of zero orders, resulting in what Towill et al.
(1992) refer to as the "stop-go" phenomenon, which creates serious problems for the management of
production and other logistics resources.
Price Discounting can contribute to the bullwhip effect when channel members overbuy and stockpile
inventories to take advantage of a price break, followed by a period of selldown and zero ordering. This
practice leads to increased inventory carrying costs for the customer, lower margins for the supplier,
and increased uncertainty in true demand patterns.
The rationing game is a buyer's reactio
Describe what a company can do to mitigate the bullwhip effect - Answers Make actual demand data
available to suppliers.
Vendor-managed inventory (VMI)
Reduce the length of the supply chain.
Reduce the lead times from order to delivery
Safety stocks, & the desire to order full container loads of materials causes orders to be placed monthly
or even less often, or at varying time interval.
Order batching occurs when sales reps fill end-of-period sales quotas, or when buyers spend end-of-year
budgets.
Solution: use frequent & smaller order sizes. Firms can order smaller quantities of a variety of items
from a supplier or use a freight forwarder to consolidate small shipments.
Contrast demand error in a traditional supply chain vs. a collaborative supply chain - Answers
Identify and explain the causes of the bullwhip effect during the Beer-Game simulation and discuss how
you would change the 'rules' of the beer game to reduce the bullwhip effect and lower costs - Answers
To Avoid Bullwhip Effect-
Reduce price fluctuations through forward buying activities to take advantage of the low price offers
between:
, retailers & consumers.
distributors & retailers.
manufacturers & distribution.
Eliminate price discounting. Many retailers have adopted everyday low prices (EDLP).
Rationing & Shortage Gaming
Rationing- occurs when demand exceeds the availability of a supplier's finished goods. To provide a
partial supply to all customers, goods are rationed to customers. Buyers tend to inflate their orders to
satisfy their real needs.
Shortage gaming- occurs when production capacity eventually equals demand & orders are filled
completely, demand suddenly drops to less-than-realistic levels, as the buying firms try to unload their
excess inventories.
Solution: sellers should allocate short supplies based on the demand histories of their customers.
Sharing future order plans with suppliers allows suppliers to increase capacity if needed, thus avoiding a
rationing situation.
Define/explain the Law of agency - Answers principal agent relationship
A consensual relationship created by contract or by law where one party, the principal, grants authority
for another party, the agent, to act on behalf of and under the control of the principal to deal with a
third party.
Discuss what a Fiduciary responsibility is and how it applies to purchasing - Answers A fiduciary is a
person who holds a legal or ethical relationship of trust with one or more other parties.
Define the elements of a contract and be able to identify is an agreement is actually a contract - Answers
Offer: a proposal by one person that he/she is willing to do something for certain terms
Acceptance: contract does not exist until the offer is formally accepted
Consideration: a form of mutual obligation
Define Breach of Contract and provide examples of contract breech - Answers any failure to perform to
the terms of the contract
Bullwhip--Define the bullwhip effect and discuss why order magnitude and variability increase for
upstream suppliers - Answers is a distribution channel phenomenon in which forecasts yield supply
chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand
as one moves further up the supply chain.
forecasts & their corresponding orders along the supply chain can become amplified and accumulate---
causing what is termed the bullwhip effect
variations in demand lead to problems in capacity planning, inventory control, & workforce &
production scheduling
ultimately, these variations result in lower levels of customer service & higher total supply chain costs
factors causing bullwhip effect - Answers Demand Signal
lead time
order batching
price discounting
rationing game
List and define the factors causing or exacerbating the bullwhip effect - Answers Demand Signal
Processing involves rational ordering decisions by buyers that over-respond to fluctuations in
downstream demand. This response is due to belief that any fluctuation is indicative of a longer-term
trend in demand. Inclusion of safety stock in orders at each tier in the supply chain contributes to
distortion of the demand signal, further exacerbating the bullwhip effect. Ultimately, the pattern results
in overshoot and collapse in ordering and inventory backlog cycles that increase with each subsequent
upstream partner.
Lead Time - Increase in variability is magnified with increasing lead time. To calculate safety stock levels
and reorder points, we multiply estimates of the average standard deviation of the daily customer
demand by the lead time. Thus, with longer lead times, a small change in the estimate of demand
variability implies a significant change in safety stock, reorder level, and thus order quantities. This
results in multiplicative rather than additive variations.
,Order batching occurs when buyers place orders based on some order cycle, such as weekly, biweekly,
or monthly, rather than placing orders more frequently when demand actually occurs. Such periodic
ordering causes spikes in demand followed by periods of zero orders, resulting in what Towill et al.
(1992) refer to as the "stop-go" phenomenon, which creates serious problems for the management of
production and other logistics resources.
Price Discounting can contribute to the bullwhip effect when channel members overbuy and stockpile
inventories to take advantage of a price break, followed by a period of selldown and zero ordering. This
practice leads to increased inventory carrying costs for the customer, lower margins for the supplier,
and increased uncertainty in true demand patterns.
The rationing game is a buyer's reactio
Describe what a company can do to mitigate the bullwhip effect - Answers Make actual demand data
available to suppliers.
Vendor-managed inventory (VMI)
Reduce the length of the supply chain.
Reduce the lead times from order to delivery
Safety stocks, & the desire to order full container loads of materials causes orders to be placed monthly
or even less often, or at varying time interval.
Order batching occurs when sales reps fill end-of-period sales quotas, or when buyers spend end-of-year
budgets.
Solution: use frequent & smaller order sizes. Firms can order smaller quantities of a variety of items
from a supplier or use a freight forwarder to consolidate small shipments.
Contrast demand error in a traditional supply chain vs. a collaborative supply chain - Answers
Identify and explain the causes of the bullwhip effect during the Beer-Game simulation and discuss how
you would change the 'rules' of the beer game to reduce the bullwhip effect and lower costs - Answers
To Avoid Bullwhip Effect-
Reduce price fluctuations through forward buying activities to take advantage of the low price offers
between:
, retailers & consumers.
distributors & retailers.
manufacturers & distribution.
Eliminate price discounting. Many retailers have adopted everyday low prices (EDLP).
Rationing & Shortage Gaming
Rationing- occurs when demand exceeds the availability of a supplier's finished goods. To provide a
partial supply to all customers, goods are rationed to customers. Buyers tend to inflate their orders to
satisfy their real needs.
Shortage gaming- occurs when production capacity eventually equals demand & orders are filled
completely, demand suddenly drops to less-than-realistic levels, as the buying firms try to unload their
excess inventories.
Solution: sellers should allocate short supplies based on the demand histories of their customers.
Sharing future order plans with suppliers allows suppliers to increase capacity if needed, thus avoiding a
rationing situation.
Define/explain the Law of agency - Answers principal agent relationship
A consensual relationship created by contract or by law where one party, the principal, grants authority
for another party, the agent, to act on behalf of and under the control of the principal to deal with a
third party.
Discuss what a Fiduciary responsibility is and how it applies to purchasing - Answers A fiduciary is a
person who holds a legal or ethical relationship of trust with one or more other parties.
Define the elements of a contract and be able to identify is an agreement is actually a contract - Answers
Offer: a proposal by one person that he/she is willing to do something for certain terms
Acceptance: contract does not exist until the offer is formally accepted
Consideration: a form of mutual obligation
Define Breach of Contract and provide examples of contract breech - Answers any failure to perform to
the terms of the contract
