Supply Chain Management Practices and Scope for Bullwhip Effect in Indian Dry Grocery Business

Supply Chain Management has come to stay as a key driver of business success and source of competitive advantage. Aligning business process through corporate restructuring is an old age phenomenon. But more significantly, streamlining flow of goods and services along with that of suppliers i.e. beyond the organizational context and integrating business processes of a firm with its suppliers is a bigger managerial challenge. The issues becomes more complex when the demand frequency increases due to the nature of the products; it becomes more complex due to the number of stock keeping units required for satisfying end customers and overall there are issues of market fluctuations both in terms of demand and prices. The customers also negotiate and use their order size as the source of bargaining power to enhance their profitability, thus reducing the gross margins of the suppliers. A distortion in the buyer-seller relationship cycle and erosion of trust makes the flow of goods and services more transactional. In order to protect the market and control of supply cycle not to lose the end-customers, suppliers tend to supply more, leading to higher inventory costs. These kind of structural issues and market fallacies lead to the ‘Bullwhip Effect’. Bullwhip effect (Lee et. al., 1997a and 1997b) which was first published by Forrester (1961), a pioneer of modern SCM remains a critical issue in the supply chain of products in the global market. A small variance in the demands of the downstream end customers may cause dramatic variance in the procurement volumes of upstream suppliers via the bullwhip effect under the condition that the distortions of demand related information exist among the members of a supply chain (Lee et. al., 1997a and 1997b; and Metters, 1997). This research paper focuses on understanding the impact of various factors like demand forecast updating order, order batching, price fluctuations and rationing and storage gaming in creating the bullwhip effect among suppliers of grocery items to large retailers. This paper also examines the influences of various external variables like business practices in the industry, nature of product supplied, small customer management issues, frequency of product supply and negotiation on SCM of grocery to large retailers.

Prof Tapan K Panda
Professor - Marketing; Director - Kotler Srinivasan Centre for Research in Marketing
Great Lakes Institute of Management, Chennai

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