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The Bullwhip Effect

Hi there. Welcome to the One Minute Supply Chain. This is Jide Oyeyipo Let's talk about the Bullwhip effect. This is one of the main reasons for excess inventories in supply chains. Here we have a supply chain for toilet rolls. It starts with the consumer downstream, the retailer, the wholesaler and the manufacturer upstream in the supply chain. The consumer places demand for one pack of toilet rolls weekly. While the retailer places demand to the wholesaler once a month and the wholesaler places demand to the manufacturer once a quarter, the manufacturer then produces 12 rolls of toilet paper quarterly. This means demand and supply throughout the quarter is balanced. But let's imagine there is a pandemic, and the consumer places demand for two packs of toilet roll to the retailer instead of one. The retailer assumes a doubling in demand and then doubles her monthly demand to the wholesaler, who in turn doubles the demand to the manufacturer. The manufacturer then doubles her production output for the quarter. But the consumer actually does not need more toilet paper. So by the next few weeks, demand stabilizes and over the course of the quarter, the supply is significantly greater than the demand. Here we say the demand and supply is not balanced, resulting in the whip effect.