The Bullwhip Effect

The bullwhip effect is a phenomenon noticed in supply chains where the failure of a buyer to communicate nothing but a spastic order now and then creates an increasing degree of disorder as orders cascade from the first tier supplier to second and third-tier suppliers, and beyond, increasing inventory throughout the chain. If the buyer communicates the actual production schedule to the suppliers, then the suppliers have the information necessary to adjust their production to actual demand, significantly reducing inventory. Thus information can make a market operate more smoothly. The bullwhip effect, or the absence of information, recently occurred in the product carrier market.