Question

Suppose a retailer is worried about a potential spike in demand, so they order 5% more product from their distributor than they usually do. The distributor sees this 5% demand spike from this retailer and perhaps a similar spike from other retailers, and so the distributor decides to order an extra 10% of the product from the manufacturer to be safe. The manufacturer, seeing a 10% spike in orders from this distributor, and perhaps seeing similar spikes from other distributors, increases orders from the suppliers that make they key components it needs by 20%. Later on, demand only rises by 2% and so there ends up being a glut of components and finished goods across the supply chain. This phenomenon is best known as .... Suppose a retailer is worried about a potential spike in demand, so they order 5% more product from their distributor than they usually do. The distributor sees this 5% demand spike from this retailer and perhaps a similar spike from other retailers, and so the distributor decides to order an extra 10% of the product from the manufacturer to be safe. The manufacturer, seeing a 10% spike in orders from this distributor, and perhaps seeing similar spikes from other distributors, increases orders from the suppliers that make they key components it needs by 20%. Later on, demand only rises by 2% and so there ends up being a glut of components and finished goods across the supply chain. This phenomenon is best known as ....

a.the bullwhip effect.
b.induced oscillations.
c.dynamic supply chain instability.
d.the butterfly effect.
e.supply chain flutter.

Answer 1

The bullwhip effect occurs when small fluctuations in consumer demand cause progressively larger oscillations in orders through different levels of the supply chain, leading to significant inefficiencies and excess inventory.

Step-by-step explanation:

The phenomenon described in the scenario where a retailer orders more products anticipating a demand spike, which causes the distributor to order even more from the manufacturer, and subsequently the manufacturer to increase orders from suppliers, eventually leading to a glut of goods when the actual demand increase is minimal, is best known as the bullwhip effect. This term refers to the amplification of demand fluctuations, not because of actual consumer demand, but due to each layer of the supply chain's ordering patterns and attempt to forecast demand. Each level in the supply chain increases their stock based on the demand they observe, which can be significantly different from the actual consumer demand, causing inefficiencies and excess inventory.