Supply Chain Coordination

Supply Chain Coordination

Introduction

Over the past decade, Wal-Mart and Tesco have famously invited their major suppliers to jointly develop powerful supply chain partnerships in order to improve coordination in the supply chain, thus meet demand with efficient supply chain management based on close coordination between/among them. These systems along with several strategies related to price and promotions are designed to increase product flow efficiency and, consequently, Tesco and Wal-Mart's profitability. Trade promotions as well as other factors such as those causes price fluctuations by big retailers like Wal-Mart and Tesco give rise to forward buying situation where a retailer or wholesaler purchases large lots of inventory during the discounting period for covering demand in the future period characterized by heavy demand for the products. During the promotion period, forward buying at Tesco and Wal-Mart results in large quantities of orders which is followed by smaller orders after that. The price fluctuations and trade promotions thus give rise to a variability in the shipments of these big retailers that is considerably higher as compared to the variability in retailer sales. For this reason, bullwhip effect incurs (Lee, 2010, Pp. 7).

Discussion

The managers at Tesco and Wal-Mart can reduce considerably the bullwhip effect by devising pricing strategies which encourage and help retailers in ordering smaller lots of inventory and as a result, reduce forward buying. Managers at big retailers like Tesco and Wal-Mart can also consider moving to volume based rather than lot size based quantity discounts - offering quantity discounts that are volume based results in the elimination of incentives for increasing the size of a single lot because it takes into account the total purchases made during a specified time period such as 1 year, instead of purchases made in a single lot. This will eventually bring about smaller lot ...