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CONTRACT MANUFACTURING: THE VALUE OF A NETWORK BASED APPROACH | 2024
Driving Value in a Value Network
This report has shared why techniques like control towers, portals, collaboration hubs, and EDI are insufficient. These current approaches result in black hole automation and bullwhip amplification. The approaches add waste and increase risk when companies believe they are investing in solutions to do the opposite. To drive improvements, companies need to address the need for a system of record and the exchange of information effectively multiple times a day. Most companies attempt to “integrate supply chain data” without accounting for the data latency in the black hole or the distortion from the bullwhip impact. The slower the product velocity through the channel and the more nodes, the greater the bullwhip effect. The higher the dependency on outsourcing and complex IT infrastructure, the
greater the number of black holes. To understand the value, ask the questions: • When did you know it was an issue? With a network, when could you have known about the issue? • What was the distortion? What is the impact of the amplification and distortion on inventory and cost? Was data latency an issue?
Measure the Bullwhip Effect by measuring the ratio of the coefficient of variation by decision node, as shown in Figure 12.
Figure 12. Bullwhip Effect
Supplier
Manufacturer
Wholesaler
Retailer
Customer
Customers
Manufacturer
Bullwhip = COV of channel sales / COV of retail replenishment orders
Bullwhip = COV of retail replenishment orders / wholesale distribution orders
Bullwhip = COV of wholesale distribution orders / COV manufacturing orders
Bullwhip = COV of planned orders / COV of purchase orders
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