The bullwhip effect refers to a frustrating phenomenon that frequently starts with falling customer demand (lthough it could start with the reverse…a previously unanticipated rapid rise in customer demand). This fall in customer demand prompts retailers to under-order so as to reduce their inventories. In turn, wholeasers under-order even further to reduce theirs and the effect amplifies up the supply chain until suppliers experience stock-outs and then over-order in response. The effect can ripple up and down the supply chain many times. The effect is amplified as it moves up the supply chain and further away from the customer.
bullwhip effect in the news
Producers of almost everything were left stranded when the global downturn took hold and retailers ran down inventories. On the way back up, the restocking of goods was so dramatic that most economists excluded the effect from their analysis. An FT Lex report in July 2011 observed that the whip might be cracking on the downside. Following a peak in February 2011, the European Purchasing Managers Index had fallen to about 50, the largest swing in a decade. The US saw a similar fall indicating that companies restocked too much and were now aggressively destocking.