Understanding the Bullwhip Effect and Craft Beer

Written by
3 Minute Read
Share Blog:

Craft beer is carving its way to the top as one of the most popular segments of the alcohol industry. Craft beer’s popularity continues to grow, with annual growth over 18% a year. Not only is craft beer shaping our drinking culture, it is changing the entire craft beer supply chain, drastically.

Supply chain management normally involves customers ordering products from a company, the company keep track of the products sold, and the company putting in orders for enough raw materials from respective suppliers to keep up with customer demand. However, as industries drastically change, like the craft beer industry, the coordination of the supply chain management can be a problem.

What is the bullwhip effect?

With the craft beer industry, you have a multitude of suppliers. Suppliers are needed to provide staple ingredients such as hops, yeast, malt and specialty ingredients such as spices, fruits, coffee beans, and fermented sugars. Those suppliers are in their own part of the supply chain. The supply chain also includes manufacturers, sales people and customers. Each group is an integral part of the supply chain. However, each group can be distant from the next and not have a full understanding of what demand means throughout the process. Since each group has control over part of the supply chain, they don’t often realise the impact or control they can have over other parts of the part chain.

Coined by Stanford Professor Hau Lee, the Bullwhip Effect is “this lack of coordination coupled with the ability to influence while being influenced by others.” In his research, Professor Lee identifies that decisions made by different groups in the supply chain can effectively worsen shortages and overstocks.

For example, say a craft beer in a company’s brewery inventory was nearing its use-by date. The brewery’s sales department offered special discounts on that craft beer to get it off the shelve. However, if the production department didn’t know about the sales promotion and they just saw the increase in sales of this craft beer, they might want to ramp up brewing for this type of craft beer. This situation is essentially the bullwhip effect. The miscommunication of the efforts to get rid of this brewery inventory are now lost in the supply chain and coordination is interrupted.

Bullwhip effect in the craft beer industry

Unfortunately, even if communication is good between different parties of the supply chain, manufacturing of craft beer can still pose difficulties. For instance, if customer orders rise, backlogs can occur. When backlogged orders occur, it can be easily misinterpreted as an increase in demand. When backlogged orders increase, craft brewers might order too much inventory and then impact others down the supply chain, causing them to experience even more backlogs.

With brewery inventory management software, the bullwhip effect can be reduced. Brewery inventory management software allows for better sharing of information throughout the craft beer supply chain, achieving enhanced communication and more accurate forecasts. Since this software provides information in real-time it can reduce or eliminate delays. With brewery inventory management software, craft brewers have a better chance at integrating their supply chain and avoiding the bullwhip effect.

Read more about the challenges of managing a supply chain.

More about the author:

Share Blog:
Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

More posts like this

Subscribe to receive the latest blog updates