What phenomenon occurs when a distributor assumes a large order is a trend and places an even larger order as a result?

The phenomenon where a distributor misinterprets a large order as indicative of a long-term trend, leading to the placement of an even larger order, is known as the bullwhip effect. This effect highlights how small fluctuations in consumer demand at the retail level can cause increasingly larger fluctuations in demand at the wholesale, distributor, and manufacturer levels.

When a distributor observes a significant order, they may erroneously conclude that this represents a shift in consumer demand rather than a one-time surge. This misunderstanding prompts them to increase their order quantities significantly, anticipating sustained demand. Consequently, this decision can create a cycle where the next level in the supply chain reacts similarly, leading to larger and larger orders up the chain.

The bullwhip effect can result in inefficiencies such as excessive inventory, wasted resources, and a lack of alignment between supply and demand. Recognizing and mitigating the bullwhip effect is crucial for maintaining effective supply chain operations and ensuring smooth product flow.

In contrast, the ripple effect typically refers to the impact of a local disruption spreading through a system, demand forecasting focuses on predicting future demand, and order amplification is not a standard term widely recognized in supply chain management, contributing to why the bullwhip effect is the correct choice in this