Bullwhip Effect

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