Supply Chain 4.0 – The Nex-Gen Solution to Combat the Bullwhip Effect of COVID-19

The sudden onslaught of the COVID-19 crisis has made various countries declare lockdowns and social distancing protocols, resulting in panic buying of key essential products, such as groceries, toilet paper, medicines masks, etc. The sudden increase in demand for these products led to the bullwhip effect, pressurizing the entire supply chain.

In addition, there will also be after-effects of the pandemic. World Trade Organization has already declared in their press release that world trade is going to fall between 13% & 32% due to the pandemic. This is expected to disrupt the entire global supply chain throughout the world.

Many companies have already started to move their production to other areas. For example, in March, Japanese carmaker Mazda moved part of its production from Jiangsu in China to Guanajuato in Mexico to ensure the least disruption in its production line. BASF also re-allocated several tons of isopropanol for hand sanitizer production. Hence, the sudden widespread volatility throughout the world led to a phenomenon known as the bullwhip effect.

WHAT IS BULLWHIP EFFECT

To understand the phenomenon, we need to study the functioning of the supply chain. In the most basic model, the supply chain starts from the manufacturer making the product, selling to the wholesaler, who in turn sell to the distributor, the distributor to the retail, who finally sells to the customers. The number of customers is thus more as compared to the retailers, the retailers more than the distributors, and so on. Hence when there are sudden fluctuations in demand, say 1x for a product to retailers, the demand would become 2x for distributors, and wholesalers would be 4x and for manufacturers will be 8x. This phenomenon of compounding the demand effects towards the upstream side of the supply chain is known as the bullwhip effect.

The below figure accurately depicts the bullwhip effect:

From time and again, technologies have increased the efficiency of the economy by either reducing time, cost, or effort required to make a product or provide service. Supply chain 4.0 can be a potential solution for the sudden widespread disruptions, to streamline the company’s operations.

Top technologies of the supply chain 4.0 that are expected to lower the bullwhip effect are mentioned below.

BIG DATA

Route Planning:

Knowing precisely the routes and the time expenditure of drivers, can reduce the time and costs of transport.

Lead Time Reduction:

Big Data reduces lead time, thereby increasing the speed of the overall supply chain.

Demand Forecasting:

Demand forecast accuracy is increased by the use of Big Data. Moreover, equipped with sentiment analysis, Big Data will be efficient in predicting future demand from the customer.

CLOUD COMPUTING

Optimizing Supply Chain:

Cloud computing helps to deploy innovative technologies to automate the distribution of infrastructure, application, and software resources over the Internet for the entire supply chain network.

Increased Co-ordination:

Implementing a cloud-based platform helps the company to better co-ordinate all participants in the supply chain as well as share data in real time. It also helps to gather more reliable data for demand forecasting using them.

BLOCKCHAIN

Digital Ledger:

Blockchain is used as a digital ledger, to get real-time access to all records and automated updates made by various players in the supply chain.

Data Sharing and Security:

All entries coded on the blockchain are cryptographically secured, rendering misuse of the data nearly impossible.

Smart Contract:

A smart contract is a codified agreement that executes itself when it meets specific conditions. Blockchain can be used for codifying and automating the execution of various supply chain contracts.

INTERNET-OF-THINGS  

Vendor Managed Inventory with RFID:

RFID technology gives a real-time picture of the inventories in the vendor managed inventory software. Remote readers installed on doors of storage register items taken out and automatically placed into storage. This increases the speed of the transaction and gives the vendor information on the exact number of inventories.

ROBOTICS

Robots are already used by many companies in their warehouses. The use of robots has reduced time and error while transporting goods from place to place. For example, Amazon employs more than 200,000 mobile robots in its warehouse operations. This has helped them to meet speedy deliveries on time.

Wrapping up

The compounding impact of the bullwhip effect is one of the utmost concerns for supply chain professionals. Managing such large scale fluctuations requires effective management practices and application of technologies. The COVID-19 crisis has shown how sudden demand could disrupt the supply chains of many companies. Hence, to mitigate the effect of such a crisis, the supply chain 4.0 technologies are anticipated to be in effect in the future.