Sizing up the flow of information and decisions along a supply chain to understand the effects within a facility and beyond.

By Robert D. Johnson, CFPIM, CIRM

The question was raised by a visitor to a forum at the APICS web site — is there a thing known as the "whiplash" effect and what is it?

The whiplash effect can be started anywhere in the supply chain, but large customers near the top of the supply chain are the usual suspects. The effect then propagates down the chain. It can happen any time supply and demand imbalances exist within the cumulative lead time of the supply chain. It is amplified by delays in decision-making and/or communications. JIT (Just-in-Time) makes it worse.

Best known is the whiplash that occurs internally when the master schedule is unstable inside a factory's cumulative lead time. This is called "nervousness" when related to successive runs of MRP in daily net change systems, but also occurs in weekly regenerative systems (same problem, just less apparent). The symptoms are recurring action messages for the same item — increase one day, decrease the next, bring it in, push it out. The experienced planner will ignore most of these messages, especially for the low-value, high-volume, common-use items.

Generous safety stocks will protect against demand fluctuations. However, the planner must be careful not to ignore changing needs for unique, relatively low-volume but higher value items. It is much harder to justify large safety stocks for these items and ignoring an action message could disrupt production. Thus, the planner will occasionally be forced to quickly reschedule and expedite such items through the fabrication and assembly departments. In short, an apparently minor change, a mere flick of the wrist, in the timing or quantities of a master-scheduled item can have significant impacts on the material requirements plan, major impacts on the capacity requirements plan, and whiplash the shop floor into a frenzy trying to figure out priorities and/or catch up.

Whether at the master schedule level or below, whenever a lot size, safety stock, lead time, due date, or the reorder point is changed you can get the whiplash effect. For example, if the lot size of the end product or any assembly near the top of the bill of material is increased inside the cumulative lead time (very few, if any, systems will allow you to set an effectivity date for lot size changes, so they will always be within cumulative lead time if the item is in the current schedule), it may cause an increase in gross requirements at the next level in the bill of material. The increase at this level may be covered by safety stock or by minor adjustments to the material requirements plan. However, if this results in a net requirement beyond what is currently on order, it will create an increase in gross requirements at the next level down.

At some point as you move down the bill of material, depending on overall stock balances, lead times and number of levels in the bill of material, an expedite action may be required by the shop or raw material vendor. The expedite is the sting of the whip.

Within one's own facility, planners and shop personnel can commence action on many unexpected changes before the planning system is updated. But your suppliers won't have a clue. If you update your MRP only once a week, it will be the following Monday afternoon, if you are not too busy, before you have passed action messages to your buyers and it will be Tuesday before buyers, if they are not too busy, have told their suppliers. The suppliers will dutifully change their master schedules, but their MRP might not run until the weekend. Now up to two weeks have passed since the initial requirements change. Pity the poor company at the bottom of the food — er, supply — chain who is being whipped mercilessly by a dozen customers to hurry up or slow down. Now!

I routinely see this scenario with clients who are tertiary or lower level vendors to the automobile, construction and agricultural equipment industries. In fact, a recent study by the Automotive Industry Action Group (AIAG) found that it takes four to six weeks for material release information to reach the bottom of the supply chain. The study determined that the information that eventually does make it down the supply chain is often distorted. Overall, the costs associated with poor information, slow propagation of information, maintenance of "just-in-case" inventories, etc., amount to an estimated $1 billion a year, or $70 per automobile in a 15 million vehicle year.

Even unrelated end users of a product can cause the whiplash effect. The effect usually occurs when several large users make demands more-or-less simultaneously on a single distributor. That distributor will probably "stock out," place emergency orders with its supplier, and increase its own safety stock. Eventually the manufacturer will be hit with a tidal wave of demand. Marketing will demand immediate action and the folks in the shop will feel the tip of the lash.

Whiplash is much more common when various parties in the supply chain are "practicing" JIT. The flow of cars on a freeway provides a good analogy. The spacing between cars is analogous to the amount of lead time or inventory in the system. The highway lanes are equivalent to different vendor choices. During off-peak hours, that is, pre-JIT, there is a lot of space/inventory between cars and a lane change or even a major speed change by a single vehicle has little effect on the overall flow of traffic. Other drivers have plenty of time to compensate. However, during rush hour, that is, post-JIT, congestion eats up the inventory of space and switching lanes becomes hazardous at best.

Now, if an automobile slows down even a little, the car behind will also have to slow down. Unfortunately, this driver will not recognize the speed change for some finite amount of time, thus using up valuable reserves of space/inventory. In fact, if the driver is not fully concentrating on the task at hand, the delay in recognizing the change promptly, and perhaps making an inappropriate response, can lead to disaster. Even if the driver is paying very close attention, there will be some delay in response. The driver will probably have to apply his or her brakes, maybe just lightly. Then the third car in this line will have to hit the brakes harder, and traffic 10 or 20 cars to the rear may come to a complete stop. This is why traffic sometimes comes to a crawl for no apparent reason.

The "unjamming" also happens slowly as these stopped or nearly stopped cars regain their speed. It takes a little time for the second car in the standing line to react, another second or two for the third car, etc. Compare this "supply chain" with a freight train chain — the locomotive only moves a few inches before the first car moves and the engine moves less than 50 feet before the last car in a 100-car train starts to move. Conversely, when the engineer applies the brakes, that signal will propagate all the way to the end of the train in relatively short order.

This analogy demonstrates that Just-in-Time inventory practices must be coupled not only with very disciplined communications, but also fast decision-making. Changes in demand or production rates by a customer near the top in the system must be immediately communicated to the next level down the supply chain. That supplier, in turn, must quickly decide how to respond and pass the new requirements down to its suppliers. For example, point-of-sale transaction recording can keep a retailer or distributor abreast of sales, but if the mechanisms for quickly propagating that information several more steps downward are missing, the overall supply chain will not be optimized. Conversely, if a supplier has a production problem, that information should be transmitted upward as rapidly as possible.

Many companies are very good at taking internal steps in response to changes (expediting). Some also do a good job of passing information downward to their suppliers. Typically, they are not as good at pushing information upward — what salesperson wants to give bad news to a customer. Unfortunately, many companies do not do a good job in either direction and almost all of the information is dissipated after passing through two or three levels. This is the next big challenge in supply chain management.

In the interim, if the folks on your production floor have welts from the whip or tread marks on their backs, take a look at how well your information and decisions are flowing internally and along your supply chain. Understand the effects of changes in schedules, lot sizes, safety stock, and so on. More importantly, understand the costly impact of slow decision-making and propagation of information both within your facility and beyond. Don't be forever trapped in a freeway traffic jam.

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