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Article 1 Consumer Demand Snaps Back. Factories Can’t Keep Up. – WSJ Article 2 Farewell Offshoring, Outsourcing. Pandemic Rewrites CEO Playbook. – WSJ Read the article above and answer the following questions below written in red – Can you connect the events in the article to the bullwhip effect described in the textbook? Can you provide similar examples of the bullwhip effect? Definition of bullwhip is bullwhip effect as “the outcome of lack of supply chain co-ordination.” A slight increase or decrease in demand from customers, creates fluctuations of order demand to manufacturer and supplier side. Can you describe what the CEO means by having more “control” in one of the articles? Good or bad? Supply chain framework of responsiveness vs efficiency and the term “uncertainty”. Does the CEO now choose to switch from efficiency to responsiveness? If we follow the theory described in text, firms should choose based on the implied demand uncertainty level. Does the implied demand uncertainty level changes? The first article is written in 2021. In that article, “companies are placing supersize orders to compensate for the extra time it takes to procure supplies from factories and freight operators” Now, after one year, what do you think is happening now? There could be different perspectives. Does anyone have experience with the bullwhip effect resulting from a lack of top management commitment? If coordination eventually improved, what actions by top management contributed?  “In September 2020, Peloton’s CEO, John Foley, said, “We feel like there’s such a massive opportunity that we need to invest heavily in the supply chain for years and years to maintain it. When you say ‘normalize coming out of Covid,’ we don’t see that.”1 Then pandemic restrictions started to ease, vaccines became available, and temperatures started to warm. Customers grew completely intolerant to Peloton’s long lead times2 and their local gym could once again satisfy their fitness needs. Demand uncertainty was clearly very high. By November 2020, Foley was apologizing for Peloton’s poor financial performance.  That’s why business experts were baffled when, six months later, Peloton announced plans to invest $400 million in building their first U.S. manufacturing facility. So, what was Foley thinking? Perhaps his fixation on past success desensitized him to the bullwhip effect… At the start of the pandemic, there was an unprecedented spike in demand that aligned almost perfectly with unprecedented external factors. When a drastic drop in demand occurred in parallel with the disappearance of those external factors, Foley was still convinced that pandemic-level demand was the new normal. With Foley promoting supply chain forecasts based on customer orders, and stages distrusting each other due to pandemic-related challenges, lack of supply chain coordination distorted the information between stages. Subsequent investments in expedited shipping and referral promotions led to slight increases in customer orders, and Peloton responded with plans to build significant manufacturing capacity. Peloton is a great example of how “coordination can succeed only with top management’s commitment.” According to The Wall Street Journal, Foley admitted to interviewing “almost nobody” that joined the company and “spending little time on the company’s finances and technology.” He even allowed his wife to lead their apparel business without proper credentials. It’s clear that his ego and self-interest led to a culture of local optimization that in turn, led to the post-pandemic bullwhip effect.” (Reduce bullwhip effect): The textbook discusses several ways to reduce bullwhip effect, some methods focus on reducing the incentive and others focus on supply chain level practices, for example, information sharing, less promotion, allocation by historical data, etc. Among these different methods, how likely are they to be implemented in practice, in the real world? In other words, do you see any implementation obstacles for any of the practices, be specific? Respond to this post below written in Blue – This is a great example! In my personal experience, I have witnessed management over-commit when I worked at MolsonCoors Beverage Company. At the time, new hard seltzer lines were growing and so MolsonCoors decided to jump in and make their own brand. Coors Light Hard Selzer was tested in the market, and the testing went well. There was a lot of hype about this product coming out, and interest formed in the public – but there was no product on the shelves to pair with that interest. Upper management decided to invest heavily in the product, prioritizing making it over other products on their lines. Soon, Coors seltzers flooded the market – and profits spiked for a short time, so management made more. Then demand fell, and unfortunately, months later, the product was discontinued with a lot of waste. They moved on to make way for other “new” disruptive product lines for the North American region, such as Vizzy and Topo Chico. If you’d like to read more about it, there are many articles! I enjoy the Booze-News here:  https://vinepair.com/booze-news/coors-seltzer-ceases-production/ The article “Consumer Demand Snaps Back. Factories Can’t Keep Up.” illustrates a very severe example of the bullwhip effect.   In the early phases of the pandemic, the companies downstream in the supply chain essentially stopped all orders, which sent a signal through the supply chain to lower production and conserve cash.  It is apparent that the supply chain listened to this demand signal as their primary source of information.  Presumably, a significant portion of the supply chain had the fearful thought that “the economy is going to come screeching to a halt, and so too will all demand” and then this fear seemed confirmed by the drop in quantity demanded early in the pandemic.   Unfortunately, this was very incomplete information in terms of how demand was going to shift. It seems very few (if any) firms in the supply chain stopped to ask, “what will this shift in consumer behavior of being stuck at home do to demand?”   If they had stopped to ask this question, many firms may have realized, “people will be at home more, and will demand more goods that are associated with at-home leisure and recreation.”   Unfortunately, this was only realized by the supply chain once the demand signal of orders triggered the thought.   The forecasting relied on the quantity of orders, but the forecasting did not consider predictive planning regarding how macro level market trends will swing demand, and factor this into their forecasting.   This reactive approach to forecasting further amplified the bull-whip effect. By having “more control” the CEO is lamenting he wants more control over supply chain uncertainties. Over the last decade the supply chain strategy has been to our source low skill jobs, and manufacturing for the benefits if low labor cost, but when the pandemic happens this cause many problems for firms as the demand increased in several sectors and the lead times from suppliers’ skyrockets, as well as the time to get products to customers. To avoid those issues in the future many companies are bringing their manufacturing closer to home base, or closer to their customer base, opting to pay the premium to produce locally, which reduces product availability uncertainty. The ability to know when products will be ready, shorter lead-times, and closer industrial proximity is what the CEO was alluding to by the phrase “control.”  I think the current situation depends on the companies and the industries. On one side, if a particular company was placing supersize orders to get priorities one year ago on some limited commodities, for example, semiconductors for automotive, this is the time they are gaining the advantage over other companies who didn’t, as they could build more cars and sell them when other players in the industry couldn’t. This will provide them with competitivity on product availability and provide them an opportunity to take advantage of selling at higher prices and receives a higher profit. But on another hand, if a company is placing oversize orders to its supply chain based on a sudden demand increase, like Peloton, which dropped later dramatically, this company will be in big trouble financially.

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