Impact of Information Distortion on Supply Chain Performance

This report delves into the critical issue of information distortion within supply chains, emphasizing its impact on market dynamics and profitability. The report defines information distortion as the variance of market factors, especially demand, and explains the bullwhip effect as a key concept, detailing how it leads to oversupply or undersupply. It highlights the detrimental effects of information distortion on supply chain performance and emphasizes the importance of accurate communication and coordination. The report suggests strategies to mitigate information distortion, such as improving communication channels, adopting e-commerce platforms, and implementing supply chain optimization models. It also discusses how companies like Walmart, Procter & Gamble, and Coca-Cola are addressing information distortion through technology, inventory management tools, and enhanced communication. The report underscores the need for businesses to obtain correct demand information to provide adequate supply and maintain customer satisfaction while reducing losses.

Information Distortion In Supply Chains 1
INFORMATION DISTORTION IN SUPPLY CHAINS
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Information Distortion In Supply Chains 2
Information distortion in supply chain
A supply chain is a combination of processes, structures, and resources that facilitate the
production and flow of a commodity from supplier to consumer. Communication and
coordination within the supply chain are of critical importance as it is the only way the supplier
can understand customer and retailer interests and, in turn, incorporate it in production.
Information distortion is the variation of market factors, especially demand as products
move within the supply chain. Demand has always risen from the consumer and moves up to the
supplier. Distortion of demand information means that the knowledge that the supplier has about
the market is not the actual representation of the state of demand (Boylan, 2011). This confusion
leads to undersupply or oversupply, which is not a profitable practice.
The bullwhip effect best explains the concept of information distortion. It focuses on
demand at the retailer level whereby a retailer views a single time increase in demand as an
indicator of a future rise in demand and therefore orders more from the wholesaler. The
wholesalers, in the same way, will increase their orders above the retailers' need. In the long run,
a vast demand reaches the producer, which does not match market reality (Zhang & Pi, 2019).
Distortion of information can also result in market shortages amplified downstream from the
supplier as a result of the reverse bullwhip effect, which leads to inventory changes. There is,
therefore, a need for companies to look out for the bullwhip effect in their supply chain through
measures like inventory dynamics optimization.

Information Distortion In Supply Chains 3
Impact of information dynamics to the supply chain
Profit-making is the main objective of most business companies. Every demand should
be met with a supply with the right pricing to realize profits. With this goal, companies should be
sure of the market conditions to provide the right commodities in the right quantities, and hence
inventory management. Information distortion has proved to be of a detrimental impact on the
excellent performance of the supply chain. There is a need to strategize on how to reduce
information breakdown.
One way to do his is by improving communication channels with the customers. This
communication will ensure that the supplier captures the right tastes and needs. One of these
strategies is through E-commerce, which has been gaining popularity among companies for a
while now. With E-commerce, customers can interact with their suppliers on websites
established by the companies (Anon., 2016). These websites form a good base for the producers
to advertise their products for customers to express their interests. Through these, consumers can
give their feedback on the products they obtain. Positive feedback can mean an increasing
market; therefore, a rising demand.
Another step that can minimize information distortion is the adoption of supply chain
optimization models. The models use algorithms to predict market demand changes and come up
with different market strategies that can enable the supplier to satisfy consumer needs without
having an overstock of the inventory (Badar & Gardner, 2013). Generally, the most critical
factor in a supply chain is effective communication. Whether it is through the internet or by
sending individuals to analyze market situations, companies should be able to obtain the correct
demand information to provide adequate supply, thereby maintaining their customers and
reducing losses through oversupply.

Information Distortion In Supply Chains 4
How supply chains are dealing with information distortion
Supply chains are embracing new trends in information technology to obtain the correct
market information. Technology is a fast way to collect and share information (Wang & Grover,
2013). Companies like Walmart, one of the largest supply chains, use information technology to
manage their inventories using their Vendor-managed Inventory Model. They also give their
customers access to their inventory information so that they can make decisions on their
preferences. This information sharing by the retail company and its customers has helped to
achieve their success in business.
Companies have also adopted supply chain and inventory optimization tools to deal with
uncertainties that are caused by information distortion. A company like Procter and Gamble have
been able to incorporate their supply chain entities with inventory management tools that enable
the use of different logarithms to predict inventory reactions to market changes like a demand.
Through their supply improvement, they have been able to maintain a successful business
practice (Ingrid Farasyn, et al., 2011).
Companies like Coca-Cola hold that effective communication between departments is the
key to deal with market distortions. Committees are formed at every level of their supply chain
from production to supply. These committees are in constant communication on the dynamics of
the supply chain. This state of contact ensures that changes that can affect a business become
known fast and effectively. With communication, the supply chain is kept up-to-date on the
market issues, and hence market success is maintained.

Information Distortion In Supply Chains 5
References
Anon., 2016. Mobile Devices and Applications for Supply Chain Management: Process,
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Badar, M. A. & Gardner, S. S. a. L., 2013. Reducing the Bullwhip Effect in the Supply Chain: A
Study of Different Ordering Strategies. The Journal of Technology Studies, 39(1), pp. 52-63.
Boylan, M. A. a. J., 2011. Feasibility principles for Downstream Demand Inference in supply
chains. The Journal of the Operational Research Society, 62(3), pp. 474-482.
Ingrid Farasyn, S. H. J. I. K. J. J. N. O. R. J., Tarlton, W., Velde, W. V. d. & Willems, G. W. a.
S. P., 2011. Inventory Optimization at Procter & Gamble: Achieving Real Benefits Through
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Wang, E. T. G. & Grover, J. C. F. T. a. V., 2013. Examining the Relational Benefits of Improved
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149-173.
Zhang, X. & Pi, W. F. a. Z., 2019. Interaction among Information Sharing, Supply Chain
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