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In this small example, with only two suppliers being
in chain, the inventory levels have gone unnecessarily
high because of the lack of information on accurate
demand of cycles at ABC's end.
Higher inventory is blocking of working capital for
the firm that reduces the operational efficiency.
Just imagine what would be happening under these
circumstances if the number of chain partners were to
be large.
The aggregate inventory would have been much higher.
This is called Bullwhip effect.
That is the building up of inventory along the chain
as a negative effect or loss of opportunity cost
resulting from the absence of a coordinated
effort , suitable and timely flow of information among
the supply chain partners.
Process integration therefore is the need of the hour
for the Supply chain partners for benefit sharing
through:
-
reduced costs in inventory holding
-
utilizing opportunity cost in better product
design and
-
manufacturing and earning more profit
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