Consumer demand patterns have changed drastically. Panic buying behaviour has led to the hoarding of supplies in bulk, resulting in empty shelves.
Enter the “The bullwhip effect”. The bullwhip effect on the supply chain is registered when inventory levels undergo huge fluctuations up the supply chain in response of a change in consumer demand. The bullwhip effect moves up the supply chain, from the retailer, wholesaler, distributor, manufacturer and then finally to the raw materials supplier. The Raw materials suppliers are the worst hit & face the biggest demand variation due to changing customer demand.
Some of the Common Causes of Bullwhip Effect Are:
The supply chains decisions are based on demand forecasts. Errors in forecasting can lead to miscalculations which gets magnified as it moves up the supply chain.
The retailers place orders in batches less frequently as compared to frequent orders of small quantities. Order batching creates more of a bullwhip effect as it increases inconsistent demand over time for the supplier.
Lead time is the time duration of when an order is placed and when it is received. Failure in consideration of lead time while managing inventory can lead to overstocking of products, resulting in a change in supplier demand over time resulting, hence the bullwhip effect.
Tackling the Bullwhip Effect
Although most supply chains will experience the bullwhip effect to some degree, but we can apply certain practices to minimize the effects.
Streamline Your Supply Chain
simplifying the supply chain structure & ensuring elimination of communication gaps across teams, decreases the probability of the bullwhip effect.
Optimize Inventory Management
Keeping track of stock levels, orders, and demand by digitalization of the process leads to more accurate ordering from suppliers, decreasing the bullwhip effect.
Minimize Sales and Discounts
Maintaining a steady price point even during market fluctuations decreases the bullwhip effect by encouraging a regular stream of customer demand.