Bad Weather Prevents Complete Fulfillment

Complete Fulfillment Hindered by Inclement Weather

The Bullwhip Effect- Encompass all reasons for a lack of complete fulfillment

The bullwhip effect refers to an economic condition relating to materials or product supply and demand, such as e-commerce and the need for these orders to be fulfilled. Observed across most industries, the bullwhip phenomenon creates large swings in demand on the supply chain resulting from relatively small, but unplanned, variations in consumer demand that escalate with each link in the chain.  This escalation is furthered when the complete fulfillment supply chain is hindered or slowed by outside variables such as weather.  The following is a couple of examples how weather prevented complete fulfillment of products on a global level.

Summer Storm Season in U.S. Creates Obstacles for Complete Fulfillment Nationally

Last summer was met with warmer temperatures, beach vacations and baseball, and unfortunately the all too common inclement weather. Hurricane season was upon the coastal regions of the United States while the Midwest has already seen its share of devastating and destructive storms including tornadoes.  Last year in April the United States saw a massive storm system rip through the South, spawning 173 tornadoes and killing hundreds. More severe weather hit the heartland in May when an EF5 tornado struck Joplin, MO, flattening the town in what is now known as the most destructive tornado in US history. A couple weeks later, a state of emergency was declared in western Massachusetts after tornadoes, though uncommon in that area,  tore through communities.  The aforementioned disasters affected many people, leaving hundreds homeless, injured or without loved ones.  It is this type of weather related obstacles, that make it hard for complete fulfillment companies to maintain consistency in the supply chain.

COMPLETE FULFILLMENT TESTED ON A GLOBAL LEVEL

Furthermore, recently the most severe weather in 50 years hit China this winter and it couldn’t have come at a worse time, as millions of Chinese headed home for the long Chinese New Year holiday and as factories rushed to get orders to the ports before closing for a week or longer. The logistics and complete fulfillment picture was especially bleak, as the double whammy of weather and congestion of shipments threatens the global supply chain and complete fulfillment abilities even in the U.S.  Severe snowstorms closed China’s highways, railroads, and airports, even stranding people in central and southern China for days. Li Qing, a senior manager in Shanghai at Xiangcai Securities, went to Hunan province on a business trip  and tried to return home starting Jan. 26. Because flights and trains were canceled for days, he couldn’t get home until Jan. 31. “I have a lot of friends from Hunan in Shanghai. Although they have booked tickets to go home for Chinese New Year’s, the trains have been canceled so they can’t take the train home. They’ve also booked flights, but they still don’t know if they’ll be able to go back,” he says.  While the economic impact unknown at the time, Taiwanese tech company MediaTek, a top designer of chips, already cited the severe snowstorms as one factor why it was projecting a slight decline in first-quarter revenues. Taiwan’s largest supplier of semiconductors for low-end handsets in China is concerned the snowstorms preventing Chinese from returning home will cut into mobile-phone sales bought as gifts. “There’s a lot of uncertainty,” Chairman Tsai Ming-kai said on a conference call with investors Jan. 30. “The snow could hurt demand and distribution for mobile phones,” Tsai said.  These same issues could  have a trickle down affect, causing complete fulfillment issues in the U.S. and on a global level since China is such a major manufacture of products.  Complete fulfillment is impossible if the product is not in the warehouse in the first place.

Weather Causes Bullwhip Effect, Bullwhip Effect Causes Complete Fulfillment Issues

So what is the Bullwhip Effect? It’s a series of events leads to variability in supplier demand up each level of the supply chain. The bullwhip effect occurs when consumers purchase more than required for their immediate need.  The cause and effect?  Events triggering the bullwhip effect include increases or decreases in order frequency or quantities, order batching to reduce shipping costs, price reductions or sales quotas, return policies or any combination of these, which can be worsened by the domino effect of in-climate weather preventing shipping. Triggers begin at any point in the supply chain: consumer, retailer, distributor, manufacturers, raw materials suppliers and so on. As orders progress up the chain, each level perceives a greater demand that it seeks to rectify from its own perspective.  Once the amplified need reaches the top of the chain, an oscillation occurs, swinging the supply and demand variable in the opposite direction, that is, triggering an oversupply that drives down demand, creating unavoidable market and profit variables. The net result is excess inventory, storage and procurement costs, lost profits and substandard service at each level.  Supply and Demand?  Demand variability is only one side of the issue. Variations due to weather and natural disasters, industrial accidents and fires, worker strikes, changes in customs and duty fees or other politically initiated unknowns all change available supply. Shortage of just one material causes a ripple in the opposite direction, driving up demand as each link increases orders to hedge against shortages.  Counter Measures?  Mitigating the bullwhip effect begins with determining what link signals the demand change: the customer, retailer, distributor or manufacturer. Counter measures seek to break the effect at various points within the chain. For instance, utilizing third-party logistics (where trucking companies batch orders for several customers at once) or scheduled rather than random deliveries, counter order batching. Other measures include quantity limits, special purchase contracts and everyday low pricing policies.  Portfolio Planning?  Diversifying the supply base or involving suppliers in long-term contracts mixed with rapid-response short-term suppliers protects against market uncertainties. Long-term suppliers receive steady income, while short-term suppliers receive a premium associated with the higher risk. For instance, rather than maintain a full-time labor force, a manufacturer could mix some full-time with part-time, contract and temporary labor to manage demand. Postponement?  Delaying the final features of a product, such as packaging, allows the manufacturer to assess demand nearer to delivery time. An example would be a canned food supplier waiting to label store brands based on final orders.  Information Sharing?  Regular supply chain members may actively share information allowing for better demand variables. This requires sharing point-of-sale data up the supply chain and involves a level of trust between members of the supply chain group to make complete fulfillment successful.

complete fulfillment