How to counter demand variability?

Very timely comes this article about the Beer game and our favorite trillion-dollar-company-to-be Apple. The Beer game is a board game where the idea is to simulate a (beer) supply chain. It seems pretty simple – in order to fulfill the end demand retailers have to order inventory from wholesalers, wholesalers – from distributors, and distributors from factory, that produces beer. Each level has to decide how much to order or produce based on their demand. Things can get out of whack pretty quickly – a small increase in end consumer demand usually leads to inventory shortage at the retail level and that drives up the ordering quantity. Wholesalers facing increased demand, also start having backlog and increase order sizes even more. When the demand hits the factory, it has to produce crazy amounts to satisfy it…

All of this is the classical Bullwhip effect… One of the reason for it is the delay between the moment when the order is placed and when it is delivered. If the delay is shorter, supply will be matched with demand quicker and inventories will be reduced. How is this all related to Apple? Continue reading