Who likes to overproduce or underproduce?
No one, right?
Considering that we must work together all the links of the supply chain, the variation in the requirements between the participants can cause a distorted inventory accumulation. The cause relays on the information provided by the following link in the chain and not on what the customer is currently buying. The fear of “running out of inventory” by the retailer or if the wholesaler is seeking volume purchase discounts; may cause such discrepancy.
This is known as Bullwhip Effect.
The bullwhip effect has as its main cause the lack of information synchrony between the companies involved in the supply chain. If there is no communication of what really is needed to supply the order, is more probable to experience some variations in over or under inventory. Therefore, the supply chain must begin with the detonator by the customer since this will set the tone on how much to prepare based on the customer requirements.
How does this affect logistics?
If excessive inventory is ordered, a greater quantity will need to be transported, so the transport will become more expensive and additional, the inventory expense will not be recovered since in theory it will not be used. On the other hand, if you order less, the transport space allocated to carry inventory is more likely to be wasted. If so, you can opt for a consolidated service (LTL).
At FR8Hub we can help you to optimize space and carry your merchandise safely to its destination. We have coverage throughout Mexico, the United States and Canada.
