Prepare for the Bullwhip’s Sting

Rising inflation and global supply chain problems raise concerns that a recession is looming.

Reading Time: 10 min 


Permissions and PDF

Nearly two years into the disruption caused by the COVID-19 pandemic, signs are pointing to the growing risk of a global economic recession. High consumer demand, product shortages, and transportation disruptions in the second half of 2021 triggered inflation and changes to manufacturers’ order patterns, setting up the bullwhip effect — a supply chain phenomenon that can have far-reaching consequences. The ups and downs of money flows, labor patterns, inventory management, and product demand are setting the stage for what happens next — and business leaders, particularly in supply chain roles, should prepare now for the greater challenges that may lie ahead.

Roots of an Upcoming Crisis

In early 2020, COVID-19 slapped down large swaths of the global economy. Individuals’ fears and government restrictions significantly curtailed many commercial activities. Sales plummeted at restaurants, theaters, gyms, discretionary retail stores, and businesses in the travel and tourism industry; many production facilities were forced to slow operations or close. U.S. GDP plummeted 32.9% in the second quarter of 2020, and U.S. unemployment rose to a record 14.8%.1

Governments around the world responded by propping up their economies with lavish stimulus payments, unemployment benefits, paycheck protection schemes, and eviction moratoriums, while central banks worked to induce liquidity by keeping interest rates very low, among other means. While government actions certainly helped many struggling families stay afloat, many other households enjoyed a double bonus of lowered household spending plus higher income thanks to the government’s largesse. As a result, the personal savings rate quadrupled in the United States, and consumers worldwide socked away some $5.4 trillion in excess savings. That surplus of money built the foundation for the subsequent rebound, product shortages, supply chain congestion, and inflationary surge. It also likely planted the seeds for the next economic downturn.

By mid-2020, home sales, home construction, and demand for building materials rebounded quickly as many people sought new, larger suburban homes. In spring 2021, consumer spending accelerated sharply as the rollout of vaccines and decline of COVID-19 case numbers encouraged a broader reopening of the economy.

The growing boom in demand induced a scarcity of semiconductor chips, home appliances, cars, and building materials that triggered inflation for many goods and commodities. The associated increase in imports also created significant congestion at ports, docks, warehouses, and rail yards.



1. G. Falk, P.D. Romero, I.A. Nicchitta, et al., “Unemployment Rates During the COVID-19 Pandemic,” PDF file (Washington, D.C.: Congressional Research Service, Aug. 20, 2021),

2. S.M. Disney and M.R. Lambrecht, “On Replenishment Rules, Forecasting and the Bullwhip Effect in Supply Chains,” Foundations and Trends in Technology, Information and Operations Management 2, no. 1 (January 2008): 1-80.

3. Data on imports of goods and services was obtained via the U.S. Bureau of Economic Analysis’s FRED (Federal Reserve Economic Data) database at See analysis of the crisis in J.C. Fransoo, R. Peels, and M. Udenio’s August 2010 article, “Supply Chain Dynamics Have Major Impact on Course of Credit Crisis.”

4. R. Peels, M. Udenio, J.C. Fransoo, et al., “Responding to the Lehman Wave: Sales Forecasting and Supply Management During the Credit Crisis,” working paper 297, Beta Research School for Operations Management and Logistics, Eindhoven, Netherlands, December 2009.

5. “Restructuring for Automotive Suppliers,” Roland Berger Strategy Consultants, Business Breakfast, Budapest, Hungary, March 31, 2010.

6. Examples include Resilinc, Everstream, Infor Nexus, Preware, and others.

Reprint #:


More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.

Comments (2)
Dr. Rabindranath Bhattacharya
There is a small correction. Please read as -
"Faster Information sharing  with upstream members" instead of "Faster Information sharing  with down stream members" 
Dr. R. B.
Dr. Rabindranath Bhattacharya
Thanks for this article.
When the demand increases the upstream members in a supply chain always keep ordering more and when the demand suddenly drops orders to upstream members drop even to zero causing hardship to suppliers. to circumvent this because of COVID situation I feel attention is to be paid to the following two points
1. Faster Information sharing  with down stream members
2. Re-alignmnet of incentives among the members. 
If the first one is not possible or limited in scope, incentives are to be so aligned and robust that upstream members are enticed to accept this resulting in a win-win situation. This may be revenue sharing or Buy back or equity participation or something else. After all any business would have ups and downs and  the ability to convert these challenges into opportunitis is what matters most here. Suppliers are partners in progress not adversaries. 
Dr. Rabindranath Bhattacharya, Adjunct Professor
Kolkata, India