Negative impacts of the bullwhip effect come from the extremes it causes. By magnifying perception, it ultimately can cause shortfalls as well as oversupply. Consequences of shortfalls are lost revenues, excess capacity, and unhappy customers when their products are delayed or unavailable. Too much inventory results in waste, inefficiency, and high costs. Some companies maintain safety stock as a buffer against demand fluctuations, but this ties up capital and is not a cure.
Because order quantities increase, suppliers struggle to meet demand. So, they in turn place larger orders with their suppliers, in an attempt to get enough parts to achieve higher output targets. At the sub-tier level, the behavior magnifies again. Raw materials suppliers may be hit with big orders from several customers who all seek to secure materials ahead of the competitors.