Bullwhip Effect

Also known as the Forrester Effect, the term applies to the responsiveness of supply chains to a change in demand. As an example, supposing there is a fire in a factory bottling cola. Retailers hear of the fire and, fearing an interruption to supply, double their orders with their distributors. The distributors experience an increase in orders and, fearing a stock-out, increase their orders on the bottler, adding a ‘just in case’ component to the retailer’s original orders. The bottler is inundated with orders and can only supply a proportion of the orders, so puts the distributors on allocation. In panic, the distributors raise fresh orders on the bottler and encourage the retailers to do the same. The demand amplification causes the bottler to experience a distorted perception of actual market demand, as retailer sales and consumption of cola may well be unchanged. See also Agility, Forrester Effect and Supply Chain.