AI Practice Knowledge BaseCounterintuitive Facts (34): Why Does a Consumer's Sneeze Cause a Factory Earthquake?
PremiumBullwhip Effect: The longer the information chain, the more distorted the world becomes
I. Suppose you're a small shop owner. Normally you sell 10 bottles of Coke per day. This week, because of hot weather, you sold 12 bottles per day. You think: business is good lately, better stock up, don't want to run out. So you order 15 bottles from the wholesaler. Keep some extra, afraid of running out. If they don't sell, you can sell them slowly.
II. The wholesaler sees your order: "Wow, downstream demand is up 50%!" They don't know it's just the hot weather. They only see your order quantity increased. They think: if I only order 15 bottles, what if demand keeps rising? So they order 25 bottles from the distributor.
III. The distributor sees the wholesaler's order: "Oh my, demand has doubled! Must expand inventory, capture market share!" So they order 50 bottles from the factory.
IV
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