Bullwhip Effect
- About:
- It is a supply chain phenomenon that refers to the amplification of variability in demand as one moves up the supply chain from retailers to manufacturers.
- Describes how small fluctuations in demand at the retail level can cause progressively larger fluctuations in demand at the wholesale, distributor, manufacturer and raw material supplier levels.
- Derived From:
- a scientific concept in which movements of a whip become similarly amplified from the origin (the hand cracking the whip) to the endpoint (the tail of the whip).
- Causes:
- Over- or under-reacting to demand expectations
- Less-than-optimal decisions made by supply chain stakeholders
- Inaccurate forecasts from over-reliance on historical demand to predict future demand
- Lead-time issues such as manufacturing delays
- Impacts:
- Increased costs associated with storage, transportation, spoilage, losses of revenue, delays to shipments
- Excess inventory and overinvestment in production
- Leads to disruptions to the supply chain
Source: Investopedia
