What is The Bullwhip Effect? — Transcript

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1. 0:05Welcome to the Investors Trading Academy talking glossary of financial terms and events.
2. 0:09Our word of the day is “Bullwhip Effect” The bullwhip effect refers to a frustrating
3. 0:13phenomenon that frequently starts with falling customer demand although it could start with
4. 0:18the reverse...a previously unanticipated rapid rise in customer demand.
5. 0:23This fall in customer demand prompts retailers to under-order so as to reduce their inventories.
6. 0:28The bullwhip effect can be explained as an occurrence detected by the supply chain where
7. 0:33orders sent to the manufacturer and supplier create larger variance then the sales to the
8. 0:38end customer.
9. 0:39These irregular orders in the lower part of the supply chain develop to be more distinct
10. 0:43higher up in the supply chain.
11. 0:45This variance can interrupt the smoothness of the supply chain process as each link in
12. 0:50the supply chain will over or underestimate the product demand resulting in exaggerated
13. 0:55fluctuations.
14. 0:57Through the numerous stages of a supply chain; key factors such as time and supply of order
15. 1:02decisions, demand for the supply, lack of communication and disorganization can result
16. 1:07in one of the most common problems in supply chain management.
17. 1:10This common problem is known as the bullwhip effect; also sometimes the whiplash effect.
18. 1:16In this blog post we will explain this concept and outline some of the contributing factors
19. 1:20to this issue.