Insufficient inventory can result in shorter lead times, a bad customer experience, and lost sales, while excess inventory can result in waste.
When traveling up the supply chain from the retail end to the manufacturing end, the bullwhip effect describes a situation in which modest variations in demand at the retail end of the supply chain get exaggerated.
This occurs when a retailer modifies the quantity of a product it orders from wholesalers in response to a little shift in the product's actual or anticipated demand.
The wholesaler will increase its orders from the manufacturer to an even greater extent because of the lack of complete information regarding the demand shift, and the manufacturer, being even further away, will adjust its production to an even greater extent.
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