Crain's Detroit Business: John Taylor on bullwhip effect on supply chain
From lumber to cheese to bath bombs to auto parts, shortages abound as the world's producers, distributors and retailers can't accurately match supply to demand. The result is empty shelves and skyrocketing prices ... with no end in sight. The fundamental issue behind each of these disruptions stems from the immediate impact of the pandemic. As stay-home orders landed across the globe and factories shut down, orders dried up in anticipation of a drawn-out recession. But it didn't play out like that. For instance, demand shifted from restaurants to grocery stores — remember the great toilet paper shortage of 2020? — and government stimulus buoyed, and sometimes boosted, consumer spending. The auto industry's ongoing semiconductor conundrum is a blueprint on how improperly assessing future demand can reverberate through the supply chain. For Zingerman's, the story is of similar dynamics. Cheese production slammed to a halt as Italy and Spain and other parts of Europe battled the virus last spring, followed by mandatory store closures in the U.S. Orders dried up, cheese spoiled, distributors docked their ships. But demand never faltered and as the industry came back on line, it's battled to play catch-up. To meet demand, purveyors ordered more imported cheese than necessary. This leads to even greater shortages from producers and distributors. So if a retailer can't get access to a wheel of imported Fleur de Marquis now, it may order more than normal when it is available to ensure it doesn't run out of stock in the future. This is called the bullwhip effect, said John Taylor, associate professor of global supply chain management and chair of the department of marketing and supply chain management at Wayne State University. "Companies are having difficulty figuring out what their customers' real demand is and are putting a lot of extra orders into the system," Taylor said. "Everyone is hedging their bets. This all leads to a lack of clarity what the demand signal really is. When you get a bullwhip, things begin to see out of stock conditions and then overflowing inventory. Industries are gyrating from having not enough product to having too much."