People wear pink shirts, they like pink shirts, but there are really only so many times you can wear a pink shirt in a week.
The market for pink shirts is pretty much stable.
This is a problem if you sell pink shirts for a living. The solution, run a promotion, 2 for 1, give free shirts away.
Customers love free things, they buy like crazy, they will buy twice what they need.
Because customers buy like crazy, the retailers order like crazy, they don’t want to run out of stock, the customers might go to another retailer for their free pink shirt, so, they will buy twice what the customers buy, just to be on the safe side.
Because the retailers are buying like crazy the manufacturers make like crazy, the last thing they want is not to be able to supply the retailers, they make twice what the retailers need, just to be on the safe side.
Because the manufacturers are making like crazy their suppliers scale up, the thread manufacturers ship tonnes and tonnes of thread, the button makers make buttons as if their life depended on it. All of them making twice what is asked, just to be on the safe side.
The problem is that nobody actually wears twice as many pink shirts
they just sit in customer’s wardrobes
and the retailer’s warehouses
and the manufacturer’s distribution centres
and the supplier’s stock yards
for months.
That is the supply chain bull whip. Small variations in demand (a 2 for one offer for a fortnight) cause massive variations in demand at the end of the supply chain.
The worst bit happens when the customer decides it is time for a new pink shirt. Everybody looks a bit surprised. Nobody has bought a pink shirt for months. All those pink shirts, that nobody wanted, have been written off and sold at factory outlets.
Of course that would never happen in the service industry.
(Unless of course you run a monthly marketing programme and drop all your marketing material on the same day every month. Or maybe you are a tax inspector and send out all your tax forms on the 6th April.)
Would it?
Read another opinion
Image by PinkMoose
Hello James
Amazing isn’t it that this phenomenon has been known for quite some time and yet it persists in all kinds of organisations – manufacturing and services. Just goes to show that knowing does not make a difference. If I stick my hand in the fire and it hurts I learn rapidly. If on the other hand I stick my hand in the fire today and the then I feel my hand burning nine months later I am genuinely puzzled as to why my hand burns. Yes, you can tell me intellectually but at some emotional level I just don’t buy it – at least my behaviour does not change!
Put differently the bullwhip effect is the natural phenomenon of a specific system structure. The problem is that our normal human thinking – individual, organisation, tribe, nation – simply does not get ‘systems structure’ nor is any good at ‘systems thinking’. And so the bullwhip effect will continue no matter what you and I write.
Maz