The Bullwhip Effect on IPL: Rendering A Death Blow

The Bullwhip Effect on IPL
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Come summer, cricket fans across the world sit glued to their television screens to watch the highly anticipated annual cricket tournament- the Indian Premier League that is conducted in India every year in the months of March, April and May.

A tournament that is the reason for inexplicable excitement for fans around the world, with crores of people thronging the stadiums to see the matches while some take to their television screens, the IPL has been entertaining cricket enthusiasts for more than twelve years. Cricket players from all around the world come in India and represent their team. Eight teams face each other, with the ultimate winner walking away with the coveted IPL trophy. As much as it is exciting for fans across the nation, it is equally challenging for the management, production, logistics and marketing team to pull off this event smoothly, as it is the source of entertainment for billions of people.

According to Duff and Phelps, a multinational financial consulting firm based in New York City, the brand value of IPL in 2019 was INR 475 billion (US$6.7 billion) and in 2015 a single tournament contributed INR 11.5 billion (US$160 million) to the GDP of the Indian economy. If we look at those numbers, we can see how big this tournament is- with billions of fans, hundreds of coordinators, quality event managers, workers, staff and government being a part of this mega event.

The 2019 IPL was a grand success, where team Mumbai Indians successfully lifted their 4th trophy. Immediately after finishing the 2019 tournament, the officials started planning for the 2020 IPL, for the standard of this tournament rises every year, enthralling fans all around the world. Planning IPL 2020 meant that there should be production and distribution of equipment, bats, balls, jerseys of every team, guards, etc. This production starts in the month of October or November and the amount of commodities produced is dependent on the previous year’s demand plus extra additional forecasted demand. Along with the production department, the logistics of equipment right from raw materials to supplying kits to players is inevitable.

Everyone expected that the 2020 IPL would be amazing as the players auction went well, many players were exchanged, and the newer talents were given a chance to perform. All in all, the preparations went as per plans by the officials, but not even a single managing team was able to predict the probability of the extreme circumstances like the one we are reeling through right now and the formidable impact of the crisis on the production line, followed by the huge costs of pre-signed contract with the supply chain management and logistics company. IPL definitely witnessed, what we term as a BULLWHIP EFFECT.

Now, what is a Bullwhip Effect?

According to Wikipedia, the bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.

So, how does this work?

The Bullwhip effect begins when the retailer, who is closest to the customer, makes inaccurate prediction of demand for particular product or it may result due to an external force which is out of our hands, like the Novel Coronavirus.

The bullwhip effect starts showing the effect when the gap between the demand and supply increases. If we take the example of IPL merchandise like team jerseys, the retailers would have predicted the future consumer behavior somewhere around November or December 2019, depending on the previous year’s IPL success. Gauging the retailer’s prediction, the wholesalers made a projection of the needed supply.

This led to wholesalers asking for the producer to supply more goods as per the retailer’s prediction that there will be a similar or more demand for the IPL merchandise. Accordingly, the producers purchase more raw materials from the suppliers and start producing as per the previous year customer behaviour. But now, due to an external force, the customer ends up using the whip, which means stopping the purchase of the IPL merchandise due to the Covid-19 crisis and subsequent lockdowns. This results in the drastic fall of the demand for those products, while the gap between demand and supply rises. The retailer stops purchasing goods from the wholesaler because his stocks are piling up, while the wholesaler on the other hand, stops purchasing goods from the producer as his stocks multiply in the warehouse, resulting in a huge impact on the producer. As shown in figure below, retailers experience less effect and it increases as it reaches to the producer, and the producer is left with finished goods.

As the effect of the whip is experienced by the manufacturer, there is one more sector which gets impacted in the process and that is obviously Logistics.

Impact on Logistics

According to The Financial Express, IPL is bigger in terms of sheer logistics activities than the ICC World Cup, Common Wealth Games and Asian Games. Just to scratch the topic, there are 12000 Hotel night booking, 20,000 air tickets and movement of 1000 plus players with their kits from one place to another, so the amount of work the logistics team has to carry out is humongous. Focusing on the bullwhip effect and how it will impact the logistics and supply chain management of IPL, let’s again consider the example of team merchandise jerseys.

Mumbai Indians’ Jersey is produced by a brand named Performax, which carries out the manufacturing in Mumbai itself. But let’s not forget that there are fans all across the nation supportive of Mumbai Indians who desire to wear the Mumbai Indians jersey- thus leading to demand creation. To fulfill this demand, Performax signs a long term contract with 3PL or 4PL to supply the goods as and when needed. For a 3PL, arrangement of human resource, distribution channel, supply design, trucks, paperwork, etc. requires heavy investment and planning.

As we pondered over earlier, what if there is an external force (COVID-19) leading to the event getting cancelled? There is a sudden fall in demand for the products that results in stock overflow in the warehouses, trucks and other transportation means stranded with jerseys, inefficient asset allocation, heavy costs for the logistics companies. Should the external force stay longer than expected, it may lead to replenishment of products. So if we bind it together, there are 8 teams, each team wearing distinct jerseys that is produced and supplied by different companies. There are 4000 cities in India and lakhs of retailers or wholesalers selling these jerseys. The amount of loss incurred by the logistics companies is enormous and only the IPL auditor can help with the numbers. Be it upstream or downstream bullwhip effect, supply chain management and logistics is bound to be affected as this is the function which binds all the activities together.

Thus, supply chain management and logistics incur enormous losses as it links all the activities together, thereby reeling under losses owing to the unprecedented crisis.

My hope rests in the belief that the firms have taken necessary steps to mitigate the huge risks with respect to all the departments.

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