Covid-19: “In Trouble, We Double” Bullwhip Effect Explained
Due to COVID-19, border restrictions and the ‘circuit breaker’ measures in March and early April, Singapore consumers were panic buying. Egg prices temporarily rose and shelves were emptied, raising questions on whether Singapore’s food supply would be affected. Distributors felt pressured to import more when supermarkets were asking for more. Mr Ma Chin Chew, Chief Executive of Local Egg Farm N & N Agriculture, said it imported more eggs during the circuit breaker period when demand spiked.1
However, 3 months later, the situation has reversed. Suppliers are now facing an oversupply of eggs, causing egg prices to plummet by at least two cents each as reported by several local newspapers. Kim Hock egg distributor1, as a result, had to throw away 250,000 eggs imported from Thailand when customers and supermarkets complained that the eggs had gone bad. Farmers and distributors have also been cutting supply.
This is a classic example of the bullwhip effect. For non-supply chain people: the bullwhip effect is a phenomenon where relatively small changes in demand at the end-consumer level lead to (unreasonably) large orders and inventory levels at the manufacturer.
There are a few explanations as to why this is happening; the main contributors to the bullwhip effect are due to a lack of information sharing in the supply chain, long lead times from manufacturer to retailer and the need for each node in a supply chain to keep its inventory and buffer stock. The human component of overreacting to issues (“in trouble, we double”) is also one of the biggest reasons the bullwhip effect exists. Despite it being a well-researched phenomenon, in practice, the bullwhip effect is still very uncommon.