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The bullwhip effect is a supply chain phenomenon where orders to suppliers tend to have a larger variability than sales to buyers, which results in an amplified demand variability upstream. In part, this results in increasing swings in inventory in response to shifts in consumer demand as one moves further up the supply chain.
The bullwhip effect (or whiplash or whipsaw effect) is a well-known symptom of coordination problems in traditional supply chains. It refers to the role played by periodical order amounts as one moves upstream in the supply chain toward the production end.
Just blame the bullwhip effect. WSJ’s Jon Hilsenrath explains what it is, and what it means for the economy. Why Everything Is On Sale: The Bullwhip Effect [Video]
The bullwhip effect happens along the supply chain as the result of information asymmetry between the organisations involved. [16] The classic scenario is a sudden increase in customer demand as shown in the figure to the right. The sudden demand hike depletes the retailer's stock resulting in lost sales.
This stability and coordination allows to reduce the bullwhip effect, [14] as the manufacturer has a clearer visibility on the supply chain and an overview of the incoming demand. [15] On the retailer’s side, all the costs associated with inventory management, (holding costs, shortage costs, spoilage costs, etc.) are greatly reduced.
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It's called the bullwhip effect, Clear said. Also, something to a smaller effect happened in 2021 when a bird flu outbreak caused shortages of eggs, but it wasn't to this scale, Clear said.
It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks and delays (the bullwhip effect), unacceptable service levels and product obsolescence. In a pull-based supply chain, procurement, production and distribution are demand-driven rather than to forecast.