Bullwhip effect refers to the amplification of demand fluctuations as they move upstream in a supply chain. It is caused by information delays, order batching, price fluctuations, and other factors.
When consumers place orders, retailers tend to order more from wholesalers to avoid stockouts. Wholesalers, in turn, overestimate the demand and order even more from manufacturers. This pattern continues upstream, leading to excessive inventory, increased costs, and inefficient operations. The Bullwhip effect can cause supply chain disruptions and reduce overall performance. To mitigate its impact, companies can improve information sharing, reduce order batching, implement advanced technologies, and enhance collaboration among supply chain partners.