hain: The Impact of Forecasting, Lead Times, and Information. Equation four simply states, as lead-time increases and the number of observed periods used to compute the average and the standard deviation decreases, the variance of Q relative to D will increase. For instance, suppose the franchise uses the past eight periods (p = 8) to estimate the demand. Let us also suppose that an order placed at the beginning of period t is received at the beginning of period t+2. In other words, L = 2. In this case, the variance in the order placed by Orem to the belt manufacturer will be at least 63% greater than the variance of the customer demand seen by the franchise. The significance of this is not subtle. On an inventory level, increased variance means increased order sizes, increased inventory, and as a result less cash available for the company to use. On a customer service level, it translates to the increased stock outs of demanded goods and a necessary increase in spending to achieve the same service levels as before the variance increased. Basically, increased variance means a decrease in the ability of a firm to operate efficiently. Losses in efficiencies are always accompanied with increased spending (Lee, pp. 93-94).This phenomenon is known as the bullwhip effect (or demand distortion). Simply stated, the bullwhip effect is the propagation of demand variance. In other words, orders to the manufacturer tend to have more variance than that of actual demand. This phenomenon has been observed in many different industries. For example, at Hewlett-Packard, the orders placed at the printer division by retailers had more variation than actual customer demand (Information Distortion, p. 546). In the every growing chain of Bobby Lawrence Karate Training Centers, there is an increasing need for better communication from studio to studio in order to ensure efficient operation. Without it, the future success will at best be question...
