bullwhip effect

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Why the Bullwhip Effect All But Guarantees Another Poorly-Handled Liquidity Crisis

Complex systems break under stress
Monday, July 1, 2013, 11:54 AM

One of my more memorable moments in business school came during an Operations class. The topic for the day was the Bullwhip Effect, a very real and vexing phenomenon that occurs in forecast-driven distribution systems.

Essentially, when there are multiple parties in a distribution system, the imperfections in each player's forecasts (no forecast is consistently perfect) compound to wreak increasing havoc over time, even if demand stays relatively stable.

Grasping how this works is somewhat non-intuitive... » Read more