Bullwhip Effect

The term bullwhip effect was coined in 1961 by MIT computer scientist Jay Forrester in his seminal book "Industrial Dynamics." It describes what happens when fluctuations in demand reverberate and amplify throughout the supply chain, leading to worsening problems and shortages. Imagine the physics of cracking a whip. It starts with a small flick of the wrist, but the whip's wave patterns grow exponentially in a chain reaction, leading to the tip, a snap - and a sharp pain for anyone on the receiving end. The same thing can happen in supply chains when orders for a product from a retailer go up or down by some amount and that gets amplified by wholesalers, distributors and raw material suppliers. The onset of the COVID-19 pandemic, which led to lengthy lockdowns, massive unemployment and a whole host of other effects that messed up global supply chains, essentially supercharged the bullwhip's snap. The supply of autos is one such example. New as well as used vehicles have been in short supply throughout the pandemic, at times forcing consumers to wait as long as a year for the most popular models. In early 2020, when the pandemic put most Americans in lockdown, carmakers began to anticipate a fall in demand, so they significantly scaled back production. This sent a signal to suppliers, especially of computer chips, that they would need to find different buyers for their products.