Don’t Let a Sudden Spike Fool You into the Bullwhip Effect

Nov 7, 2022Articles

When all the different players in a supply chain quickly respond to sudden demand fluctuation, they can create a larger ripple action known as the bullwhip effect. In short, when each member of the supply chain overcompensates for this sudden demand with excess products it often leads to increased production, inaccurate demand forecasting, and inconsistent inventories. Buyers often create these demands by purchasing larger volumes of products. Then manufacturers and distributors in the chain typically respond by placing orders upstream. But when the supply chain comprises many companies, the spike indicators can become confused and dysfunctional.

Demand forecasting is often based on what the customer bought last month or what’s known as the order history. When the demand for the product is stable, supply chains function properly. But when you get a sudden spike in demand over a short period it is often misinterpreted as a fundamental shift. The retailer quickly responds by increasing orders and the manufacturer assumes that the spike in demand is long-term. But in reality, the demand signal going
up the chain becomes exaggerated leading to over-ordering.

Eventually, that demand signal gets turned into a product that starts making it back down the chain. That’s about when buyers realize their purchasing mistake, so they quickly pull back their orders. This whipsaw occurrence is called the “bullwhip effect,” because the wild variation in product volumes moving along the chain looks like the cracking of a bullwhip. The impact of the bullwhip effect can cause several costly issues with the supply chain operations including increased storage costs, labor, customer complaints, and waste.

One effective way to avoid the bullwhip effect is to utilize Shippers Solutions’ Easy Supply Program (ESP) which monitors real-time sales and buffered data
from their supplier partners. Combined with pre-determined settings the data is processed through an order-history algorithm to create precise replenishment recommendations. Using ESP is hassle-free and actually guarantees that you’ll never have to worry about running out of inventory again. We invite you to contact us if you’d like to hear more about this time-tested inventory management solution. For more information go to