INVENTORY MANAGEMENT AND THE BULLWHIP EFFECT DURING THE 2007â2009 RECESSION: EVIDENCE FROM THE MANUFACTURING SECTOR*

Abstract

The 2007–2009 recession led to a significant decrease in consumer demand. We use monthly inventory and sales data to study the impact of the recession on manufacturers, wholesalers and retailers in the U.S. manufacturing sector. We find wholesalers responded late and drastically, indicative of a bullwhip effect, while retailers responded quickly and more conservatively, indicative of environmental smoothing. Smoothing of demand and inventory is demonstrated as an alternative response to a significant change in demand.