Global semiconductor shortage can be explained by the 'bullwhip effect'

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Regular visitors to the UK’s Multimodal exhibition (yes, it may seem like distant memory at the moment, but at some point we will return), may have played the Beer Game at the Trade Extensions stand, an exercise that shows just how quickly supply chains can become snarled when individual players have no visibility of what their supply chain partners are doing. This is also known as the “bullwhip effect”, which is explained in this feature from Quartz and is probably the major reason why the global hi-tech industry is facing its worst semi-conductor crisis for years.

“This bullwhip effect explains how these small shifts in demand for certain goods ripple up the supply chain, causing bigger and bigger swings in production. Since they can’t predict the future, retailers introduce errors when they scale up their orders in response to expected demand. Wholesale suppliers magnify that error when they adjust their own orders to manufacturers. Even more error is introduced when manufacturers order raw materials from their suppliers, and so on. The further up the supply chain, the more demand signals become distorted.”