Supply Chain Story: The Bullwhip Job
My first professional supply chain experience happened back in 2004. At the time, I was a computer science student at the Ecole Normale Supérieure (ENS), a university in Paris. My interests covered a wide range of wholly theoretical subjects, yet, I was also intrigued by the idea of testing out those theories “in the wild”. The ideal plan, I thought, would be to be paid for such an undertaking. I wasn’t that interested in money though. Students at the ENS already received a salary from the State - it’s a very French thing - but it seemed to me that having a sponsor would ensure that I wouldn’t be entirely wasting my time either.
Thus, the next step was to find such a sponsor. I started asking around. It turned out to be a peculiar experience. Indeed, the ENS’ purpose is to train civil servants who will spend their life serving the State. My career hasn’t exactly gone according to plan in this regard. Thus, requests for contacts with the private sector were frowned upon (to put it mildly). Nevertheless, I ultimately discovered that the ENS had a “secret” junior enterprise named The Institute of the ENS. The name hinted at nothing, which was, I reckon, the whole point. Junior enterprises are nonprofit organizations that provide while-collar, short-lived jobs for students.
The first secretary of the institute, a pleasant middle aged man, received me. The institute wasn’t exactly thriving. I was the first student to show up in months, he told me, and he had no job to hand over to me. This was disappointing, so I pressed on. The first secretary decided that the honorary president of the institute would be consulted on this delicate matter.
The honorary president of the institute turned out to be the actual president of a 10+ billion euros food retail network. A few days later, after reviewing my case, he offered me a contractor job in his own company. Details, like the actual nature of the job, would be sorted out later and by other people. I agreed, and was immediately put into the good care of his supply chain director.
The supply chain director was a busy man. In his sixties, he had remained sharp and fit. A massive initiative, driven by a big name consultancy, was in progress. The codename of the initiative was “Bullwhip” in reference to a seemingly very influential paper “The Bullwhip Effect” published a few years before. French teams had even flown to the USA to receive special coaching sessions on the matter. Naturally, I knew nothing about this paper. The director hastily brought me up to speed and showed me some flow data across the retail network.
While I knew next to nothing about supply chain, it turned out that I had an interest for the human perception of randomness. One of the most puzzling scientific results of this field of study is that humans are, on average, very bad at identifying “statistical noise”. We, humans, have a massive propensity to see patterns everywhere.
Thus, while flow fluctuations were very strong indeed, I was immediately skeptical concerning their root causes. I shared my skepticism with the director. Those fluctuations could be explained through demand randomness alone, I said. I wasn’t convinced that any of the four factors, as listed in the original bullwhip paper, had much to do with the problems that the retail network was facing.
The director was unconvinced but he saw an opportunity to keep me busy, and most importantly to keep me out of his otherwise busy schedule. He asked me whether I could program. I said I could. So, he started laying out the battle plan for a simulator that I would implement to test out this randomness hypothesis. Little data was actually required, about a dozen macro-parameters characterizing the network and its assortment. The whole meeting had lasted less than an hour and I was dismissed.
A few weeks later, I had implemented the simulator, and low and behold, it exhibited flow fluctuations comparable to those observed in the wild. The root cause was mundane stock-outs on perishable products. Stock-outs were generating a small, but constant, synchronization pressure on all flows, both from suppliers to warehouses and from warehouses to stores. Lacking any active counter-pressure, what started as small random waves ended up as large, but still random, waves in the flows. Another meeting was organized.
He reviewed my results with care. He challenged me on a series of implementation details. My answers appeared satisfying. He tasked me to run a few counter-experiments with alternative assumptions. I came back a few days later with more results. The big picture remained unchanged. The counter-experiments were aligned with what we were both expecting. I didn’t know it yet, but this was the last meeting I would have with him for years.
The next day, the consultants were terminated, including me. The new motto was: back to basics.
This massive initiative had been launched on the now-disproven premises that, by addressing the bullwhip effect root causes, the negative consequences would cease or, at the very least, be largely mitigated. Those expected benefits had just evaporated. The upper management was furious. From their perspective, they had been played. To add insult to injury, all it had taken to debunk the whole thing had been the accidental contribution of a student. The backlash came fast and hard.
From this experience, my first job, I walked away with my first consultancy paycheck, and the conviction that the Primum non nocere (first, do not harm) wasn’t only meant to be just a medical principle.
