As you move across the supply chain from the supplier to the customer, the variability in the demand increases and even small changes in the demand can trigger large variations in the execution of order to the next stage of the supply chain. This variability can result from change in demand, problems in quality of products, or any unforeseen disaster. Combination of variability and time delays in flow of information up the supply chain leads to delay in flow of goods and services down the supply chain creating a bullwhip effect.
In such a situation, each organization involved in the supply chain seeks to solve the problem by keeping their own perspective in view resulting in further delays. This results in increase in overall costs and deterioration of quality of services.
For example, if a customer is offered a transportation discount incentive for volume orders then the customer will tend to accumulate the orders and then order the product all at once. This may cause the manufacturer’s to be in a problem situation since the demand has exceeded the number of the units that can be supplied. This causes the supply chain to oscillate (during this period ) so as to fulfill this sudden increase in the demand.
