The Bullwhip Effect

The Bullwhip Effect describes how small fluctuations in consumer demand at the retail level can lead to larger and larger fluctuations in demand as you move up the supply chain to manufacturers and suppliers. For example, if a store sees a slight increase in demand for a product, it may order more from its wholesaler, who then orders even more from the manufacturer to keep up. This cumulative effect can cause significant overproduction or stock shortages, leading to inefficiencies and higher costs in the supply chain. Effective communication and demand forecasting can help mitigate this issue.