Supply Chain Dynamics: RFID, IoT, and Bullwhip Effect Mitigation

Radio Frequency Identification (RFID)

RFID Components and Tag Types

RFID tags are attached to items intended for tracking.

• Passive Tags: Powered by incoming RF. They are smaller, cheaper, and long-life, with a typical range of 5 meters.
• Active Tags: Battery powered. Can be read up to 100 feet away.
• Semi-Active Tags: Offer a range similar to passive tags but reliability comparable to active tags.

Applications, Challenges, and Concerns

Key Applications

• EZ-Pass
• Walmart inventory management

Challenges

• Reducing tag price
• Managing necessary IT infrastructure

Security and Privacy Concerns

• Low credibility regarding data security
• Lack of informed user consent
• Vulnerability to hacking

Defining the Internet of Things (IoT)

The Internet of Things (IoT) is the network of physical objects—including devices, vehicles, buildings, and other items—embedded with electronics, software, sensors, and network connectivity. This integration enables these objects to collect and exchange data.

Understanding the Bullwhip Effect

The Bullwhip Effect describes fluctuations along the supply chain.

Three Main Patterns of the Bullwhip Effect

• Oscillation: Inventory or backlog goes down, then up.
• Amplification: The height of oscillations (and hence costs) increases the farther away one is from the end customer. Note: The distributor usually illustrates significant oscillation because the factory is buffered by having no limits on capacity.
• Lag: The swings generally happen later in time and increase as one goes farther away from the end customer.

Drivers of the Bullwhip Effect

The resulting bullwhip effect is driven by four main factors:

1. Demand forecast updating
2. Order batching
3. Price fluctuation
4. Rationing and shortage gaming

1. Demand Forecast Updating

At each level in the supply chain, the input to the demand forecast is based on the orders received from the level below (especially when that level is a different company or organization).

2. Order Batching

When demand comes in, the retailer does not order immediately but accumulates demand and then orders again in batches.

3. Price Fluctuation

Forward buying often results in price fluctuations.

4. Rationing and Shortage Gaming

If total supply is only 50% of total demand, customers will receive only 50% of their order.

Addressing Supply Chain Problems

When demand exceeds supply, suppliers often order more to counteract the lower supply, exacerbating the bullwhip effect.

Countermeasures

To counteract this issue, organizations should:

• Do not allocate products based on orders alone.
• Allocate products in proportion to past sales records.

Lessons from the Beer Game

Factors that Mitigate the Bullwhip Effect

The following factors significantly reduce the severity of the bullwhip effect:

• Better communication among supply chain players
• Shorter order lead times
• Point-of-sale (POS) information visibility