A bullwhip, according to the Wall Street Journal, is the magnifying force of inventory re-stocking as economies begin to improve. When sales drop, companies usually cut their inventories even more than the revenue decline as they sell out of inventory instead of production. So their orders to suppliers drop move than their sales decline. As this de-stocking phenomenon moves through the supply chain, the effect is magnified at each level. According to the Jan 27, 2010 wsj.online article, “’Bullwhip’ Hits Firms as Growth Snaps Back,” firms sliced inventories by $207 billion during the recession.
Now, as companies see growth on the horizon, the tidal wave has turned.
From the article, “Economists call it a bullwhip because even small increases in demand can cause a big snap in the need for parts and materials further down the supply chain.
“The bullwhip has broad implications now as companies rush to fill orders while also restocking warehouse shelves. It touches everyone from retailers to the industrial companies that supply the grease, bolts and coal needed to churn out more products. The manner in which companies, large and small, respond to market shifts determines which ones emerge first from the slump and start growing again.”
How prepared is your organization for the ‘bullwhip’? And do you know how prepared your competitors are for the magnifying effects of the turnaround?
The article cites Caterpiller as an example; the company began visiting suppliers last year to tell them that even if no growth occurred in 2010, orders from Caterpiller would rise by 30% to 40% to restock inventories and satisfy demand.
With banks still reluctant to lend, some frims will not have the financial resources to respond. Is your company one of them, or wll re-stocking be an opportunity to gain market share from competitors which are not prepared for an increase in demand?