KOCHI: Global attention to the Silk Road was rekindled in 2016 when the Chinese supremo Xi Jinping announced the creation of a modern day route christened Belt and Road Initiative for connecting China to Europe for integrating Asian, European and African markets
The Silk Road connected China to Europe, a 4,000 mile (6,440 km)-long arduous route starting from Xian in the middle kingdom of China and ending at the eastern Mediterranean shores. The merchandise silk crossed the Mediterranean in sail ships and reaches Venice in Italy. From Italy, it will reach various cities in Europe by land and river routes. It was an astonishing supply chain which lasted for centuries till Ottoman Turks captured Constantinople and disrupted the land trade in AD 1453 forcing the western traders to search for an alternate sea route to the east. Streams of caravans managed the flow of silk from east to west throughout the year except for harsh winter and brought back gold and silver coins and other precious goods received in exchange.
Bullwhip Effect in Ancient Silk road
When inventory exhausts in Palmyra, the communication from Dura Europos would reach Ctesiphon, an oasis near present day Baghdad, to deliver more silk one week later and that message would take another week to arrive and an additional week for the increased deliveries to appear. Ctesiphon would in turn ask for more silk, etc. Responses are slow and such long communication time lead to inventory build up at different facilities while few places face dry outs. Communications announcing dry outs and overstocks lead to breakdown of supply chain coordination.
How it was managed
The basic strategy followed by Barmakids was to keep products available to meet demand along the road. One has to prevent dry outs and overstocks in the supply chain as it would lead to panic buying , price escalation on the one hand and inventory hold up and rise in the holding and protection cost on the other hand. Profits get crippled for the merchants, and product availability and prices for customers become unpredictable.
To overcome this problem it was decided to keep big on hand inventories at four major centers along the Silk Road namely Dunhuang, Kashgar, Merv and Ctesiphon to contain supply chain disruptions along the route. These centers operated as master distribution centers. It involved a lot of money. The Dunhuang centre was managed by the Chinese empire.
These master distributors procured the material directly from the manufacturers and they in turn sold them only to small distributors. The manufacturers set their price at the beginning of the year. Barmakids operated the biggest main distribution centre at Merv and in other centres they entered into contracts with major players.
To maintain price stability for the large inventory they held , they set the prices. For that they collected the price offers from Chinese manufacturers and based on demand projection that they developed they set the prices at which they were selling to smaller distributors. Barmakid prices became the standard for other merchants and thus price stability was maintained in the system and required stock was available with the main centers. This ensured availability as per demand at stable prices. The author is an associate professor at SCMS School of Technology and Management, Kalamassery
pathway of history
UIt was an astonishing supply chain which lasted for centuries till Ottoman Turks captured Constantinople and disrupted the land trade in AD 1453 forcing the western traders to search for an alternate sea route to the east. Streams of caravans managed the flow of silk from east to west.
What is a bullwhip?
Bullwhip refers to the demand amplification caused by inadequate communication and imperfect coordination between different actors in the supply chain, leading to overstock and stockout causing supply chain losses. Ancient Silk Road was the first global supply chain and was the most complex.