American Finasco > Blog > The Bullwhip Effect
the bullwhip effect

CoVid-19 has changed how we work, live, shop, and do business. Panic pandemic purchases caused by uncertainty and stay-at-home orders have had a consistent impact on some industries such as grocers and medical supplies, to name only a few. Businesses have found themselves both out of stock and currently, with overstock. Consumer behaviors have changed rapidly but these shifts have created consequences for many businesses known as the “bullwhip effect.”

The bullwhip effect causes an uneven balance between suppliers and retailers as the demand for products increase and decreases quickly and in a short amount of time. As suppliers are fulfilling the demand of yesterday, the demand of today becomes completely different. The most dangerous result of this effect is ending up with excess inventory when consumer demand decreases.


One problem with having excess inventory is that it takes up space and prevents the ability to offer customers newer and more necessary products. When unsold product sits on the store floor, it restricts better product opportunities.

Reduced Profits

Excess inventory causes reduced profit margins. Excess items are placed on clearance to persuade buyers to purchase at lower costs. Some companies even wind up selling extra inventory at prices below what they paid, just to free up space. Selling at lower prices means you are not bringing in as much cash as you could selling products at regular prices.

Storage Costs

Another major concern of carrying excess inventory is the many costs involved to store it. Many companies own storage space for new products until it is time to sell. More space used in storage means there is less floor space for selling. Plus, storage involves utility, rent, and cost for employees to maintain, organize and move inventory.


Along with the costs of inventory management, there is a worst-case scenario when excess inventory needs to be discarded. Carrying a product with an expiration date, unsold has to be thrown away. Expired goods and supplies like medicine, bread, and other foods expire must be tossed at some point. Reducing wasted inventory is critical for cost control and affects profitability.

Small businesses are still suffering from the devastation of COVID-19. Some are continuing to keep their head above water, others have closed or completely overwhelmed with debt. By leveraging American Finasco, your debt can be managed, reduced, or consolidated while you stay focused on your business.

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