What is a common challenge associated with the bullwhip effect?

The bullwhip effect refers to the phenomenon in supply chain management where small changes in consumer demand at the retail level cause larger and larger fluctuations in demand as you move up the supply chain, from retailers to wholesalers to manufacturers and suppliers. This effect can lead to significant challenges, one of which is the occurrence of inventory stockouts and excess inventory at different levels of the supply chain.

When demand forecasting is distorted due to the bullwhip effect, companies may overreact to changes in consumer demand. This can result in excessive orders being placed upstream in the supply chain, leading to excess inventory accumulation at certain points, while simultaneously, other areas may experience stockouts due to reduced inventory. These fluctuations can cause inefficiencies, increased costs, and lost sales opportunities due to failure to meet customer demand.

Therefore, the answer highlighting inventory stockouts and excess inventory at various stages of the supply chain directly addresses the challenges brought about by the bullwhip effect, making it the correct choice in this context.