Define the bullwhip effect and discuss the advantages of holding inventory far upstream or downstream in the supply chain
What will be an ideal response?
Answer: The bullwhip effect is the phenomenon of a small change in demand downstream in the supply chain causing an extreme change in the inventory position upstream in the supply chain. Inventory increases in cost and value but decreases in flexibility as materials move down the supply chain. There is a trade-off between the advantages of having shelves full of inventory ready to be sold to customers and the lack of flexibility and increased costs attached to that finished goods inventory. Operations and supply chain managers must strike a balance between these two when deciding where to place inventory in the supply chain.
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