The theory was first introduced in 1961 by J Forrester in Industrial Dynamics. In general business activities, customer demand is always unstable, and companies always need to optimize the allocation of inventory and other resources by forecasting customer demand. Forecasting is based on statistics, which is generally impossible to be completely accurate, so enterprises often keep some extra inventory as safety stock in their operations. In the supply chain, from downstream to upstream, from the end customer to the original supplier, each component will require more and more safety stock. During periods of high demand, downstream companies will increase the amount of orders from upstream, and during periods of low demand, downstream companies will reduce or stop ordering. This change in demand is amplified as it travels up the supply chain. This amplification of information distortion is graphically displayed like a long whip, so it is figuratively called the whip effect. The downstream client side is equivalent to the root of the whip, while the upstream supplier side is equivalent to the tip of the whip, and a slight jiggle at the root end will be transmitted to the tip end with a large fluctuation. The further upstream in the supply chain this effect is, the greater the change, and the further away from the end customer, the greater the impact.
The Bullwhip Effect is an observed phenomenon in forecast-driven distribution channels. The concept has its roots in J Forrester's Industrial The concept has its roots in J Forrester's Industrial Dynamics and thus it is also known as the Forrester Effect. Since the oscillating demand magnification upstream a supply chain reminds someone of a Since the oscillating demand magnification upstream a supply chain reminds someone of a cracking whip it became famous as the Bullwhip Effect.