Core Concepts
Bullwhip Effect
The phenomenon where small fluctuations in retail demand cause increasingly larger fluctuations in wholesale and manufacturing demand.
EOQ (Economic Order Quantity)
The optimal order quantity that minimizes total inventory costs: EOQ = √(2DS/H).
Just-in-Time (JIT)
An inventory strategy that aims to reduce receiving and storage costs by receiving goods only as needed.
SCOR Model
Plan → Source → Make → Deliver → Return. The standard framework for supply chain management.
Worked Examples & Applications
EOQ Example: Annual demand D = 10,000 units. Order cost S = $50/order. Holding cost H = $2/unit/year. EOQ = √(2 × 10,000 × 50 / 2) = √500,000 ≈ 707 units. Total cost = √(2DSH) = √(2 × 10,000 × 50 × 2) ≈ $1,414/year.
Bullwhip Example: Retailer demand fluctuates ±10%. Distributor orders fluctuate ±20%. Manufacturer production fluctuates ±40%. Raw material orders fluctuate ±80%. Amplified by demand forecasting and batch ordering.
Practice Questions
Q: What is the Bullwhip Effect? A: The amplification of demand variability as it moves upstream in the supply chain. Small retail changes cause large manufacturing swings.
Q: What is the EOQ formula? A: EOQ = √(2DS/H), where D = annual demand, S = order cost, H = holding cost per unit per year.