The problem with managing demand and supply variability in the supply chain stems from the inability of traditional planning systems to solve the bullwhip effect, a problem demonstrated by Prof. Jay Forrester in his 1957 computer simulation and subsequent HBR Article on Industrial Dynamics. The bullwhip effect is caused when small variations in customer demand ripple upstream, resulting in dramatic swings in demand at each link in the supply chain.
The dramatic swings in demand across the supply chain result in poor supply chain delivery performance, stock-outs, excess inventory and high expediting costs. The solution to solve the bullwhip lies in what we call ‘consumption based replenishment’. Consumption based replenishment has its roots in lean manufacturing and Kanban pull systems.
Today, this form of replenishment levers the internet to provide real-time electronic communication and collaboration across trading partners, providing a competitive advantage for companies with global supply chains.