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However, when they examined the orders from the reseller, they observed much bigger swings.Also, to their surprise, they discovered that the orders from the printer division to the company’s integrated circuit division had even greater fluctuations.This effect was observed by executives of Procter and Gamble (P&G).Sales patterns for one of their best-selling products, Pampers, fluctuated in retail stores but the variabilities were not excessive.However, as they examined the distributors’ orders, the executives were surprised by the degree of variability.
This irregularity or variance in the size of the orders placed, increases as we move up the supply chain, i.e.Eventually, 40 units were produced against a demand of nine units.The inventory will be pushed to the customer through offers and discounts and more investment will be made for the product's marketing and advertising efforts.An unmanaged supply chain is not inherently stable.Demand variability increases as one moves up the supply chain away from the retail customer, and small changes in consumer demand can result in large variations in orders placed upstream.
Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. Its sales at retail stores were fluctuating, but the variabilities were certainly not excessive.