The bullwhip effect (or whip effect) is a phenomenon triggered by fluctuations of demand within a multi-level supply chain.
One example: A dealer places an order with his wholesaler. He has already considred numerous factors such as possible bottlenecks, volume discounts, etc. and orders a slightly higher amount. The wholesaler also wants to ensure his delivery capacity and increases the order quantity as well. The effect of the increased order quantity increases and expands over the entire supply chain. Finally, quantities are produced for which there are no customers.
Close cooperation between the supply chain partners and a transparent design of the supply chain processes can significantly reduce the bullwhip effect.
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