customers, manufacturers often deal with such uncertainties and unforeseen events by keeping more material or products in inventory than what they think they may actually need. The safety stock acts as a buffer for the lack of flexibility in the supply chain. Although excess inventory is expensive, low fill rates are also costly because business may be lost from canceled orders.
One recurring problem in supply chain management is the bullwhip effect, in which information about the demand for a product gets distorted as it passes from one entity to the next across the supply chain. A slight rise in demand for an item might cause different members in the supply chain distributors, manufactures, suppliers, secondary suppliers (suppliers’ suppliers), and tertiary suppliers (suppliers’ suppliers’ suppliers) to stockpile inventory so each has enough “ just in case.” These changes ripple throughout the supply chain, magnifying what stared out as a small change from planned orders, creating excess inventory, production, warehousing, and shipping costs (see Figure 8.3)