The Bullwhip Effect on Supply Chains

The Bullwhip Effect on Supply Chains

A common risk in a supply chain is referred to as the “bullwhip effect“, where demand can back-propagate and create an undue level of procurement; an amplification. For instance, a customer may order 10 units of a product from a retailer. The retailer may order 12 units from a distributor to ensure additional inventory (and anticipate higher future demand). In turn, a distributor may order 15 units from a manufacturer, which could order components from suppliers to make 20 units. In this case, a 10-unit order has resulted in the procurement of 20 units. The bullwhip effect can have an important effect during a supply chain disruption, as uncertain conditions may incite much higher orders than the actual long-term demand, which are amplified further upstream the supply chain.