Tuesday, August 12, 2008

On bullwhip effect

In a supply chain network, (demand) variability increases as orders move upstream. Eventually, the network can oscillate in very large swings as each organization in the supply chain seeks to solve the problem from its own perspective. This phenomenon is known as the bullwhip effect and has been observed across most industries, resulting in increased cost and poorer service.

Among the culprits are demand forecast inaccuracies: everybody in the chain adds a certain percentage to the demand estimates. The result is no visibility of true customer demand.

This phenomenon apparently also applies in life.

Well, how?

It's simply the attempt to impress. Unfortunately, people get inaccurate and unconfirmed information about how to impress. They end up trying many things that they think or assume will work.

This is cascaded down. And further down, with many more assumptions, in the hierarchy. Moving the herds up and down with new assumptions. The swings get bigger each level.

No one wins.

It sucks.