The Multi-Year Bullwhip Effect: It Is Really Crazy Out There Right Now, It's Not Just You

You saw it in Peloton in a Petri dish. Hot product on the market, faces historical existential demand shock, resulting in massive over-ordering, resulting in inevitable reversion to mean, resulting in over-allocation. Still a good product, but hard to survive.

It feels right now the entire world is in the grips of this effect and is not sure what to do about it. Coming into January, forecasts were that first half of the year would be tough, but second half was very hopeful. That is completely out the window now, and people are starting to worry about 2023 as well.

Just look at all these things:

- China, a country that controls a third of the world's manufacturing, is shutting down entire cities and locking own its residents. Manufacturers and retailers simply don't know when, if, or what percentage of any orders they are going to receive

- The Western Hemisphere not positioned to take significant share of manufacturing. Western manufacturers are not well-positioned to be as efficient as China, leading most brands to conclude it's better to "muddle through" the current situation than switch to something with obviously worse service, costs, turnarounds, etc.

Executives are concluding "if this affects everyone, I can't be fired for it."

- Destabilization and uncertainty in growth markets for big players. Both Amazon and Shopify's biggest growth markets should be Europe and Asia going forward. Name markets more affected by the war in Ukraine? Russia is a huge player in those spheres.

- Cancel Culture Sneaks Into Retail Merchandising. Many suppliers have reached out to me that their retail partner's forecasts keep dropping, and this has led not just to minor edits to orders. Major orders at major retailers like TJX are being canceled.

- Pay A Premium Above Sticker to Reserve a Place in Queue For a Car. Want to buy a car? Forget about it. It's a complete disaster. No inventory, high prices, no cars to test drive, salespeople playing cards on the showroom floor.

- Even products on the shelves cost more and you get less. A friend of mine orders plants for their garden from Costco every spring for the past 10 years. The flowers there last weekend were worse quality, 15% smaller, and 20% more expensive.

They bought them all anyway. If this is the best Costco's famously amazing merchandising team can do, what hope do other retailers have?

- Consumer costs are rising and foot traffic is reportedly off. People are more value-oriented. If you are in a job and get a raise, raises seem about 5%. Which is great until you realize prices are up 8-10%. Many employees are throwing up their hands.

Some are predicting loudly inflation will dissipate. It won't matter. It's not like we are "recovering from COVID" and waiting for a return to normal. The system is still being actively disrupted by new threats, seemingly weekly.

Strap in.