Looking at the COVID 19 toilet paper problem (and now, canned goods, cleaning supplies, and others) from a supply chain perspective, this is going to be an interesting case study of the bullwhip effect–unless managed very carefully.
The “bullwhip effect” normally discusses the fact that demands for a product are relatively constant but that the aggregating of orders as the demands are placed backwards in the supply chain amplify the peaks and valleys. Thus large orders for restocking flow in, resulting in high demand at the distribution centers, who then later place larger orders on the manufacturer, who then increases production. When this is done without collaboration we see significant swings resulting in stockouts and over production.
Now, in this case, I believe the “back end demand” (pun intended) hasn’t changed, but we have created the initial swing at the consumer level rather than the aggregated store or distribution center level.
It seems reasonable to conclude that people will most likely work through their new “stash” and restock as they normally would, extending the time before their next purchase–perhaps significantly. This is the downward swing of the bullwhip.
Here’s the question: what actions should the manufacturer take to respond? Are they recognizing the uniqueness of this situation, and moderating their production response? Are they preparing for the expected decrease in demand so that they are not left with warehouses full of toilet paper that won’t move (no pun intended, that time) for months?
Collaboration is a vital business tool. It allows for quick response. Rational response. And we need both now, more than ever.
Now, enjoy this video of the bullwhip meeting toiletpaper, courtesy of AdamCWM on YouTube. Check out his other videos mastering the bullwhip.