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?

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?

Using technology to automate ordering can reduce the costs associated with frequent shipments, allowing for more consistent, smaller orders.

Several factors contribute to this distortion, often rooted in a lack of communication:

By shortening the time it takes to produce and ship goods, companies can react more quickly to real demand shifts rather than relying on long-term guesses.

In an ideal world, supply exactly matches demand. However, because each stage of the supply chain has its own forecasting, inventory limits, and lead times, information becomes distorted as it moves upstream.

While difficult to eliminate entirely, the bullwhip effect can be mitigated through better strategy and technology: