Special promotions and discounts encourage customers to buy in bulk. This masks the actual consumption rate and leads to "forward buying," which confuses upstream suppliers.
When a product is in short supply, retailers may order double what they need, hoping they’ll receive at least half. When the shortage ends, they cancel the excess orders, leaving the manufacturer with a huge surplus. How can it be managed? The bullwhip effect: What, why and how?
Instead of seeing what the customer actually bought, a manufacturer sees a highly exaggerated order from a distributor trying to "play it safe." This leads to a cycle of massive overstocking followed by extreme product shortages. Why does it happen? Special promotions and discounts encourage customers to buy
The Bullwhip Effect: Understanding the Ripple in the Supply Chain When the shortage ends, they cancel the excess
Using technology to automate ordering can reduce the costs associated with frequent shipments, allowing for more consistent, smaller orders.