In supply chain, the “bullwhip effect” is when customer demand (the handle of the whip) causes increasingly large swings in inventory (or “waves” of the whip leaving the handle) as you go further back in the chain. Brent Misso writes for Entrepreneur about the deeper implications this has for your business in the supply chain.
Cracking the Whip
The surface reason for why the bullwhip effect occurs has been made pretty clear over the years, namely owing to the challenge of managing lead times. But Misso looks to human behavior as another underlying cause. He says there is a “fear factor” where panic or greed leads people to make poor decisions. Another factor is people being unable to identify market “bottoms” where it is time to buy. Misso believes the smart thing to do is to develop a “contrarian” attitude, not just for its own sake of course, but because bullwhip effect derives from a herd mentality, and so it is up to you to go against the herd when practical. For a more in-depth discussion, you can read Missos’ original article here: http://www.entrepreneur.com/article/232953#