What Is The Bullwhip Effect?

The bullwhip effect is a small change in the downstream demand near the end consumer which causes a significant change in the upstream demand closer to the manufacturer. In other words, a small change in consumer demand causes a much greater change in the inventory of each participant in the supply chain, and the change becomes bigger and bigger as we move upstream, say, from inventory of finished goods to inventory of raw material. The bullwhip effect is the result of lack of visibility in consumer demand, unusual changes in consumers’ buying patterns, and poor forecasts. Increased collaboration and visibility across the chain are used to mitigate the bullwhip effect.