The "narrative trap" of price increase logic

Anyone familiar with supply chain management should know about the "bullwhip effect." In supply chains, small fluctuations downstream (retail) can be amplified layer by layer, resulting in significant volatility upstream (manufacturers, raw material suppliers). This ultimately leads to inventory buildup or shortages throughout the supply chain. For example, a slight year-on-year change in home appliance shipments can be greatly magnified as it passes through wholesalers, exporters, and manufacturers. By the time the fluctuation reaches upstream component factories or even further up to copper and steel enterprises, the volatility becomes even more pronounced.Why does the supply chain experience the bullwhip effect? The reason is somewhat similar to those game shows where messages get distorted as they are passed along. Many product supply chains have too many layers. Take steel, for instance: the proportion of direct sales from steel mills to end users is limited, so most products go through multiple levels of agents or traders within the distribution system, often with strong regional characteristics. As a result, every participant must maintain "safety stock," so the total inventory accumulated across the entire industry chain often represents several times the actual end-user demand.When commodity analysts calculate supply-demand balance sheets, they generally assume "no significant changes in supply chain inventory." Overall inventory fluctuations are often several times greater than real shifts in downstream demand, causing price increases to overshoot and declines to overcorrect. This also leads to the common mentality of "buy when prices rise, not when they fall." When prices rise, inventory values increase, and traders are naturally more willing to stockpile inventory, which ultimately amplifies real demand. When prices fall, all channels reduce inventory, and the demand seen by manufacturers appears to "plummet," although the actual situation isn't that bad.Recently, Meta’s plan to sell computing power triggered a global adjustment in the AI sector. Part of the reason behind this is also the "bullwhip effect." However, high-tech industries differ somewhat from traditional industries, and the impact on various stages of the industry chain also varies. In tomorrow's (Wednesday) livestream at 11:30 AM (UTC+8), we will be discussing this topic. Everyone is welcome to tune in.