Question

How does the bullwhip effect impact on the business of
an organization

Answer 1

Bullwhip effect is a phenomenon which results in a ripple transmitted to the various levels of supply chain due to change in the forecast numbers resulting in a lot of inefficiencies in the system.

Bullwhip effect has a great deal of impact of on the business of an organization:

It results in a relative swing in the levels of the inventory with a change in the forecast at the level of the customer.

Due to change in the demand at the level of the customer, the organization responds by creating and maintaining relatively very high level of inventory at different nodes. This blocks the resources and the working capital; this also results in the spoilage of goods, obsolescence, short of funds for producing / procuring inventory actually required.

It results in excess inventory, impact on revenue, compromised customer service, building capacities not required, heavy capital outflow and poor production planning.

These all results in loss of sales and revenue and hitting financially to the top line & bottom line of the organization.