Bullwhip Effect Still In Force, Could be Years Before it Sorts Out

Business owners tend to think in trendlines. Whatever is happening in the last 13 months is going to continue indefinitely, look that's what this chart says. Right? Right??

In the pandemic run-up, there was a lot of overproduction and overhiring ahead of expected demand.

As inflation rose and consumer priorities shifted, that leads to canceled orders. Going forward, it also means smaller orders. First canceled (Q1/early Q2 this year) and then later smaller orders (now) means less economic activity. Recession becomes self-fulfilling at this point.

After all, if you know your supplier has an abundance of inventory sitting around then why over-order? It's like dropshipping - let's just push the inventory problem to our brand partners ;-)

If the retailers are carrying even less stock, then that means suppliers are strapped for cash too, which likely means layoffs. Which has consequences for their businesses. Not to mention, businesses all over are not being rewarded as much for growth in this environment.

If you can get your head around a visual of a python swallowing a pig, we are definitely in this period of the python still digesting this post-COVID pig, and the second, third and fourth-order effects of this. Higher interest rates are just compounding it as well.